The Internal Revenue Service has good news for millions of taxpayers in 17 states who received a one-time special state payment last year to offset inflation and other negative economic impacts: Those payments won’t be subject to federal income tax. “The IRS determined it will not challenge the taxability of payments related to general welfare and disaster relief,” the agency said in a statement Friday evening.
Residents of Georgia, Massachusetts, South Carolina and Virginia will not owe federal income tax on their special state payments as long as those payments were a refund of state taxes they paid and for which they “claimed the standard deduction or itemized their deductions but did not receive a tax benefit .” For example, say you got a $500 special state tax refund last year on the basis of the $12,000 you paid in state income and property taxes for 2021.
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