IRS Won’t Tax Indiana & Illinois ‘Special Payments’ Made to Taxpayers in 2022
After initially telling Indiana & Illinois taxpayers to wait to file their 2022 federal tax returns, the IRS has now given the green light.
State Issued Rebates & Refunds
In 2022 several states, including Illinois and Indiana, issued rebate and refund payments to taxpayers. In Illinois, there was a one-time rebate payment made to qualifying taxpayers as part of the Illinois Family Relief Plan that was passed by the Illinois House and Senate. In Indiana, there were two payments totaling up to $325 for individuals and up to $650 for couples filing jointly, and they were made to eligible Hoosiers with what the Indiana Department of Revenue called Automatic Taxpayer Refunds.
The Initial Delay from the IRS
The Internal Revenue Service had initially issued a recommendation to wait to file federal taxes for taxpayers in Indiana, Illinois, and other states that had issued rebates and refunds, saying that these payments were "complex." The government agency had said previously that they were unsure of how or even if these state payments should be taxed on the federal level.
You May Not Have to Report Those Payments
On Friday, the IRS released a statement saying it had reached a decision regarding those state-issued payments. They say that taxpayers in many states may not need to report those rebates and refunds when filing their 2022 federal taxes. In a press release, the IRS says,
During a review, the IRS determined it will not challenge the taxability of payments related to general welfare and disaster relief. This means that people in the following states do not need to report these state payments on their 2022 tax return: California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Maine, New Jersey, New Mexico, New York, Oregon, Pennsylvania and Rhode Island. Alaska is in this group as well, but please see below for more nuanced information.
In addition, many people in Georgia, Massachusetts, South Carolina and Virginia also will not include state payments in income for federal tax purposes if they meet certain requirements. For these individuals, state payments will not be included for federal tax purposes if the payment is a refund of state taxes paid and either the recipient claimed the standard deduction or itemized their deductions but did not receive a tax benefit.
Filing Deadline Changes
While traditionally, your annual tax filing with the IRS has been due by April 15th, the government agency has amended the date for filing 2022 taxes. The new deadline for this year will be April 18, 2023. Learn more here.