The Internal Revenue Service determined Friday that money which comes from state refunds is not taxable and does not need to be reported as income.
Last week, the IRS requested millions of taxpayers across 20 states to hold off on filing their income taxes while it determined whether income from state rebates is taxable."During a review, the IRS determined it will not challenge the taxability of payments related to general welfare and disaster relief," the IRS said in Friday's update.
More than 20 states issued rebates last year due to a surplus in their budgets from federal assistance during the COVID-19 pandemic. Those states included California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Maine, New Jersey, New Mexico, New York, Oregon, Pennsylvania, and Rhode Island.
The change means the payments 16 million Californians had received as part of California's Middle Class Tax Refund will not be taxed. Eligible state residents received between $200 and $1,050 through the refund. The final rollout of the refund will occur on Tuesday.
The federal government's three stimulus checks that were disbursed during the pandemic are also not considered taxable income.
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