Treatment of State Tax Payments

In this post, we will be sharing a video featuring Jonathan Mishkin, a trusted expert in tax law and tax controversy, as he discusses the treatment of state tax payments for federal taxes. Jonathan, along with his paralegal Brandi, will provide insights into the recent guidance issued by the IRS on the reporting of certain special payments made by states on federal tax returns for the 2022 tax year. Specifically, they will delve into the exceptions that may apply to certain payments made for the promotion of general welfare or as a disaster relief payment, such as those related to the COVID-19 pandemic. The discussion also covers how taxpayers can ensure they do not accidentally include income that should be excluded because it was a state disaster or relief payment.

Brandi: Thanks for joining Jonathan Mishkin, a trusted expert in tax law and tax controversy. I’m your host and Jonathan’s paralegal, Brandi.
Today Jonathan will discuss the treatment of state tax payments for federal taxes.
Hi Jonathan, what do we need to know about the treatment of state tax payments for the 2022 tax year?

Jonathan: Hi Brandi, hi everybody.

What I wanted to discuss today was that the IRS has recently issued guidance that taxpayers will not need to report certain special payments that are made by states on their 2022 federal tax return.

While in general payments made by states are normally considered gross income, and you would put it on your federal tax return, there are certain exceptions that are going to apply for certain payments made during the 2022 year.

If a payment is made for the promotion of general welfare or as a disaster relief payment – for example, related to all of the COVID issues – it may be excludable from income for federal tax purposes under either the general welfare doctrine or as a qualified disaster relief payment.

In Oregon specifically, such payments were made under the following Bill: HB4157 as a “one-time assistance payment”.

Determining whether payments qualify in general for these exceptions is a complex, fact-intensive inquiry that depends on certain considerations. However, the IRS has determined that in the best interest of sound tax administration, and given the fact that we’ve had such an ongoing pandemic emergency – which will be ending, thankfully, in May of 2023 – if a taxpayer fails to include the amount of one of these payments in its 2022 income the IRS is most likely not going to challenge its treatment, so the advice is to make sure you’re not accidentally including income that should be excluded because it was a state disaster or relief payment.

Specifically, since Oregon has legislation on that, if you received payments based on it you do not have to report them as income on your 2022 tax return.

Brandi: Thanks, Jonathan. If you need assistance with tax planning or resolving your tax issue, please log on to www.jmishkinlaw.com to schedule a consultation with Jonathan.