Unsure if ‘inflation checks’ taxable, IRS urges some to hold off on filing

by Jacob Fuller

Willie R. Tubbs, FISM News

States that issued so-called inflation checks in 2022 might have unintentionally added to their citizens’ federal tax burden.

Late last week, to little fanfare, the IRS issued a brief statement that could have major ramifications for filers in states where some form of relief check was issued in response to the widespread and steep inflation that has and continues to afflict the U.S. economy.

The problem, or potential problem, for filers is that the IRS does not quite know if that relief counts as taxable income.

“The IRS is aware of questions involving special tax refunds or payments made by states in 2022; we are working with state tax officials as quickly as possible to provide additional information and clarity for taxpayers,” the statement reads. “There are a variety of state programs that distributed these payments in 2022 and the rules surrounding them are complex. We expect to provide additional clarity for as many states and taxpayers as possible next week.”

IRS officials also took the highly irregular step of urging taxpayers to not file their federal returns until after the agency issued further guidance.

“For taxpayers uncertain about the taxability of their state payments, the IRS recommends they wait until additional guidance is available or consult with a reputable tax professional,” the statement reads. “For taxpayers and tax preparers with questions, the best course of action is to wait for additional clarification on state payments rather than calling the IRS. We also do not recommend amending a previously filed 2022 return.”

Nineteen states — Alaska, California, Colorado, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Maine, Massachusetts, Minnesota, New Jersey, New Mexico, New York, Pennsylvania, South Carolina, and Virginia — issued some form of inflation checks in 2022.

Importantly, not every resident in these states received a check; and, in some states, there was an application process.

The state with the most citizens who are likely to be affected by the IRS’s sudden bout of vacillation is California, where the state issued stimulus checks based on financial need using residents’ previous-year filings. Similarly, residents in Illinois received a one-time payment of $700.

According to a report by Nexstar, the state of California has indicated it believes the funds are not taxable at the state level but offered no strong opinion on the money’s status as federal income.


Decision makers at the IRS have been quite busy this week pondering the many ways the agency can maximize income for the federal government.

Fox News reports that, in addition to mulling a tax on inflation relief checks, the IRS is also floating a plan to force service-industry workers and their employers to keep better books when it comes to tip wages.

“Those 87,000 new IRS agents that you were promised would only target the rich, they’re coming after waitresses’ tips now,” Fox quoted Mike Palicz, federal affairs manager at Americans for Tax Reform, as saying.

IRS officials have stressed no rule is in place.

“This is not a proposal for the auditing of servers,” an IRS official told Fox. “Yesterday’s action was a proposal for comment – not a rule – based on over a decade of feedback from restaurants and other businesses seeking the increased flexibility for their overall tax compliance on tips.”

A good rule of thumb is to always beware when a government representative says something is for one’s own good, and in this case at one’s own request.

The proposal, at present, calls for forcing employers to more rigidly account for the money servers bring in via tips, including requiring employers to submit annual reports to the IRS, as well as a retooling of the tax rules that govern taxes on gratuity.