Stimulus Update: Watch the Mail to See if Your 2022 Stimulus Check Will Be Taxed

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State stimulus checks could potentially be taxed. What could this news mean for you? 

In 2022, a number of states sent out stimulus checks. Millions of Americans received these direct payments deposited into their bank accounts or sent via check in the mail.

Now, however, it is possible that some of the recipients of stimulus checks will end up having to pay taxes on the money they received.

Here’s why that’s the case, as well as some advice on how you can know if you’ll get a tax bill on your stimulus funds.

State stimulus payments could be considered taxable income

When the federal government sent out stimulus checks during the COVID-19 pandemic, the checks were advances on tax credits. Since tax credits reduce your tax bill and aren’t considered income in a traditional sense, you didn’t have to worry about owing taxes on your federal stimulus checks.

But, in some cases, the states that sent out payments are reporting the distributed money as income. For example, the California Franchise Tax Board decided it would report the middle class refunds the state was sending out to the IRS if the payments were valued at over $600. The reason for this choice is that California payments were exempted from state income tax, but the money could still be considered income by the IRS.

This is not the case with all stimulus check payments sent by states. For example, the state of Colorado has indicated that the Cash Back tax refund is not considered taxable income. But it is possible other states will take a similar approach to California and require that you report your state stimulus funds to the IRS as income.

How will you know if your state stimulus money was taxable?

The best way to determine if your state stimulus check is considered income to report to the IRS or not is to watch the mail to see if you receive a 1099-MISC form. These tax forms are issued if you earn miscellaneous income valued at $600 or more.

If your state sends you one of these, that means you must report your stimulus money on your federal tax return. Keep a watchful eye on your mailbox to see if this form arrives. Most of these forms have to be postmarked by Jan. 31, 2023, so if you are going to get one, you should expect it to come within the next few weeks.

If you do, be sure to follow the instructions for reporting the miscellaneous income when you submit your 1040 forms for the 2022 tax year.

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