The pandemic years were one of the worst periods for Americans as they struggled with both health issues and the economic deprivation brought about by the collapse of the economy. But the federal government moved in fast and showered low and moderate-income citizens with billions of dollars of stimulus checks.
The third and final stimulus checks were sent out starting March 2021 with the signing of the American Rescue Plan Act by incoming president Joe Biden. The last day for Americans to claim a missing stimulus check was on November 15, 2022. Other than stimulus checks pending from 2021, and the remaining half of the expanded Child Tax Credit stimulus check, no other fresh payments were issued by the federal government in 2022.
Economically 2022 was as tough a year for America as the previous two years. Though not caused by COVID-19, the pandemic was indirectly responsible for the record inflation that threatened to derail the economy at one stage. Right from the last quarter of 2021, prices increased relentlessly and reached record figures by the middle of 2022.
Inflation figures constantly stayed above the 8.5% mark and even went over 9% in June 2022. The situation was managed to some extent by close to two dozen states as they sent out inflation relief stimulus checks to residents, mostly as one-time payments.
The states were helped by funds they received under the American Rescue Plan Act to combat the pandemic. a mini economic boom in the last two quarters of 2021 too helped states release the funds necessary for the stimulus checks and tax rebates.
While most states sent out the payments in the first two quarters of 2022, states such as California and Colorado timed their stimulus checks for the last quarter, in time for the festive season. The payments have continued into the new year and are expected to continue for the first quarter of this year.
Federal Stimulus Checks Continue To Elude Americans Who Need It The Most
Close to 10 million Americans did not receive part or whole of the economic impact payments, the Earned Income Tax Credit, and the expanded Child Tax Credit stimulus check for no fault of theirs. A majority of individuals and families who make up this number do not earn enough to make it mandatory for them to file income tax returns. This is one major reason that such individuals remained outside the radar of the IRS when they compiled a list of people who would benefit from the economic impact payments.
But there were also Americans who did not receive their payment even when the government sent out a stimulus check in their name. This took place because the tax agency did not have the banking details or the current address of the potential beneficiaries. There were people on the list who also did not file their 2021 returns, or they did not file them correctly, giving all the details needed to send a stimulus check.
IRS Clears Air Surrounding Tax On State Stimulus Check
The state stimulus check sent out by 21 states to millions of eligible residents in 2022 raised questions about whether the payments would be taxed as income. The IRS itself was undecided on the issue and advised Americans residing in these states to put off filing their federal returns for 2022 till the agency issued a final clarification on the issue.
Finally, in the second week of this month, the IRS offered some much-hoped-for news to millions of filers when it announced its decision on the federal tax status of inflation relief, stimulus checks, and tax rebates.
The IRS had described the situation as being unique and complex. Following the lengthy review, the IRS has decided that it would not challenge the taxability of most of the special state inflation relief stimulus checks. The IRS determined that in the interest of sound tax administration and other factors, filers in many states will not have to report such payments on their income tax returns for 2022.
The announcement by the premier tax agency covers various categories of state payments that were issued through 2022, mostly as inflation relief payments. Initially, the agency determined that it would not challenge the state payments made last year that were related to disaster relief and general welfare.
Residents of the states which paid out special payments in 2022 and fall into this category have been exempted from paying federal taxes on such income. They include Colorado, California, Delaware, Connecticut, Hawaii, Florida, Illinois, Idaho, Maine, Indiana, New Mexico, New York, Pennsylvania, Oregon, Rhode Island, and New Jersey.
Some State Relief Stimulus Checks Could Attract Federal Taxes
The IRS has indicated that some state relief payments could attract federal taxes. The IRS considers some of the special supplement energy relief given by the Alaska administration to its residents as related to disaster relief and general welfare. So those payments fall into the identical category as other state inflation stimulus checks and will not be taxed by the IRS.
However several states, including Alaska, also made other payments in 2022 to residents that the agency says are generally taxable when it comes to federal income taxes. as a consequence, the IRS may consider certain payments by the Alaska administration including the Permanent Fund Dividend to generally fall in the taxable category. This also included other payments that were provided as compensation to workers in other states.
For those residents who live in states where the 2022 special inflation relief payments were refunds of state taxes paid, the IRS has indicated that it will exclude those payments from income in certain situations. In Massachusetts, Virginia, South Carolina, and Georgia, residents received special income tax rebates last year that could also come under the same category.
For those who received any one of those special tax rebates or claimed standard deduction, the IRS has indicated that the special tax rebates will not attract federal taxes. this also goes for itemized deductions that did not receive any tax benefits as a result.
In its clarification on the state stimulus checks, the IRS has pointed out that the emergency declaration linked to the pandemic will end in May this year, indicating that the IRS deems the special state payments as an issue linked to the 2022 tax year.
