Guidance on Excluding Special Payments

“Most taxpayers receiving state tax refunds do not have to include the state tax refund in income for federal tax purposes.”

In February 2023, the IRS determined that residents of 21 states would not need to include certain special payments in their 2022 federal income. Residents in Georgia, Massachusetts, South Carolina, and Virginia did not have to include state refunds where the recipient claimed the standard deduction or itemized deductions but did not receive a tax benefit. The IRS also determined that it would not challenge the treatment of 2022 payments related to general welfare or disaster relief from 17 states including California, Florida, New York, and Pennsylvania (complete list) because of the uncertainties and complexities related to these situations. For more specifics, consult Notice 2023-56.

On August 30, 2023, the IRS confirmed that taxpayers who qualified under the 2022 program but did not actually receive payment until 2023 may also exclude those payments as part of their federal income.

Federal Deduction Updates

According to savings.com, teachers on average spend about $550 of their own funds each year to help their students acquire basic supplies, yet the annual tax deduction for such expenses has been stuck at $250 since the deduction was established in 2001. In 2023, the maximum deduction is $300, and it is anticipated to rise in future years by $50.00 increments to adjust for inflation. It’s about time!

This is a Back to School image for our tax deduction for teacher expenses.

Additionally, if you purchase a used electric or fuel cell vehicle in 2023 for $25,000 or less, you may qualify for a used clean vehicle tax credit for up to 30% or $4,000. Certain limitations apply, so visit irs.gov/cleanvehicles for more information before you make your purchase.