Are Stimulus or Relief Payments Taxable?
To help Americans make it through the depths of the pandemic, the U.S. government issued a series of stimulus payments in 2020 and 2021. According to data from the U.S. Census Bureau, that financial relief helped pull 11.7 million people out of poverty in 2020 alone.
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After federal payments expired, some states got in on the action, offering various payments to residents ranging from “tax rebates” to “inflation relief checks.”
While all of this stimulus no doubt helped out many Americans in need, many asked the logical question about whether all of this money would be considered taxable income. Others who may not have even considered that possibility could face a surprise come tax time.
Here is what is known so far regarding the taxation of federal and state stimulus payments. As the interpretation of tax law frequently changes, be sure to check with your tax advisor, the IRS and/or your state taxing authority regarding the taxability of any payments you may have received.
Also see seven things you won’t have to pay taxes on this year.
Federal Stimulus Payments
Federal stimulus payments issued in response to the pandemic were sent out in 2020 and 2021. If for some reason you didn’t get your payment until 2022, then it could theoretically affect the tax return you file in 2023. After all, in nearly every case, income is taxable in the year it is actually received, even if it was intended to be sent in a prior year.
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Fortunately for those receiving late payments, taxation of federal stimulus isn’t an actual issue. In fact, this is true regardless of when you received them. The IRS has deemed as not taxable any payments received from the Coronavirus Aid, Relief and Economic Security Act, the 2021 Coronavirus Response and Relief Supplemental Appropriations Act or the American Rescue Plan Act of 2021.
State Relief Payments
The question regarding state tax relief payments is a bit more ambiguous than the blanket exemption given to federal stimulus — at least on a state level.
At the federal level, state relief payments are generally free from taxation because they are considered similar to welfare payments. However, on a case-by-case basis, it’s possible that you may owe federal taxes on those payments. The bottom line is that you’ll have to consult your state taxing authority — and potentially the IRS — for the final decision.
Even the governing authorities themselves are still figuring out the tax situation. Using California’s “Middle Class Tax Refunds” as an example, the state’s own Franchise Tax Board website indicates that “You do not need to claim the payment as income on your California income tax return.”
However, it also states that your payments “may be considered federal income” — which could make them taxable. This seems even more likely as the state also has indicated that it will issue 1099s to residents and the IRS for any payments it made of $600 or more, which includes many of the relief payments.
Whether those payments are ultimately deemed taxable will depend on the IRS, according to IRS enrolled agent Norman Golden.
Lisa Greene-Lewis, a spokeswoman for TurboTax, told the San Francisco Chronicle that “because the middle-class tax refund is not considered a return of taxes, it would not be taxable.” But Spidell Publishing, which provides tax information for professionals, said via a podcast and a direct note to clients that it’s not clear whether the Middle Class Tax Refunds would qualify for a tax exemption.
The Bottom Line
Roughly 20 states announced or distributed some type of stimulus in 2022, so it’s very possible you received a payment even if you didn’t take note of it at the time. Look for 1099s in the mail recording these payments and/or check with your state to see whether payments were issued.
The issue of state stimulus payments is a textbook example of why it’s important to work with an accountant or other tax professional. The law regarding the taxation of these payments is ambiguous at this point, and new developments are likely to arise before the April 18 tax deadline.
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