The IRS (U.S. Internal Revenue Service) has finally stated on how to declare extraordinary payments made during 2022. It did so through its publication 2023-23.

This IRS announcement resolves uncertainty over the status of these payments. Taxpayers in certain states do not need to report payments related to general welfare and disaster relief on their 2022 tax returns. Moreover, taxpayers in Alaska do not need to report state payments related to supplemental energy relief payment received in addition to the annual permanent fund dividend.

The IRS has examined which types of payments are taxable and which ones are not before federal tax. Given the complicated fact-specific nature of determining the treatment of these payments for federal tax purposes, balanced against the need to provide certainty and clarity to individuals who are now attempting to file their 2022 federal income tax returns, the IRS has determined that in the best interest of sound tax administration and given the fact that the COVID-19 pandemic emergency filing ends in May 2023, if taxpayers do not include the amount of one of these payments in their 2022 income for Federal income tax purposes, the IRS will not challenge the treatment of the 2022 payment as excludable from income on an original or amended return.

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