‘Refund’ States Still Face IRS Complexity on Relief Check Taxes

Despite an IRS clarification that most of the “special payments” provided in 21 states last year won’t be treated as income for federal tax purposes, complexity continues for people in four states that technically structured their payments as tax refunds rather than one-time rebates.

Taxpayers receiving refunds in Georgia, Massachusetts, South Carolina, and Virginia could be on the hook for federal taxes on those payments if they gained a federal tax benefit, the IRS said in a Feb. 10 guidance statement. Residents of the four states falling into this category include people who itemized their deductions and didn’t reach ...