During the pandemic, 21 states made direct payments to residents to help them keep up with rising costs. The IRS recently addressed whether people would have to report those payments on their federal income-tax returns. For people in 17 states, there’s a simple answer: They do not need to worry about reporting the relief money on their 2022 returns, the agency said earlier this month.
But there’s a wrinkle for residents of four states: Georgia, Massachusetts, South Carolina and Virginia. The IRS said there might be instances where taxpayers in these states will need to count the money as part of their income on their federal return. What’s the difference? Tax professionals say that while most people in these four states will not have to report the money on their returns, the sliver of taxpayers who itemized their deductions and previously took a state and local tax deduction — instead of taking the standard deduction — do need to pay attention. “It is safe to say it will not impact that many people,” said LuSundra Everett, president of the Virginia Society of Enrolled Agents. For reference, 90% of the 154.3 million individual tax returns filed for the 2021 tax year used the standard deduction, according to IRS records through mid-November. At a time when inflation is slowly coming off four-decade highs, anything that helps people hang on to their money is good news. And anything that keeps tax returns as simple as possible is a …