The IRS has also provided a chart of the specific state payments to which this IRS guidance applies with links to the various state tax payment program websites.
State tax refund payments
The IRS has determined that special 2022 state refunds for four states do not qualify as a disaster relief payment and are actually a refund of state income taxes resulting in the payment being included in 2022 income for federal tax purposes depending on if the taxpayer claimed the standard deduction or itemized their deductions on their 2021 individual tax return. The four states with 2022 payments being treated as state tax refunds are:
- South Carolina
The IRS also reminded taxpayers in their guidance that other ongoing state payments such as unemployment compensation are generally includable in federal taxable income as these payments do not qualify for the welfare and disaster relief tax exclusions.
PBMares clients with questions about the taxability of any state disaster relief and tax refund payments can reach out to Charles Dean Smith, Jr., CPA and Partner in the firm’s New Bern, NC and Wilmington, NC offices.