New: IRS will not tax energy relief portion of Alaska PFD

By
Suzanne Downing
-
18

Tax filing season is here, and along with it, confusion about what income is taxable.

The Internal Revenue Service provided guidance this week on how it views state payments that are considered relief, refunds, and rebates. The guidance says that part of last year’s Alaska Permanent Fund dividend — the energy relief portion — is not taxable.

Last year’s Permanent Fund dividend was $3,284, the largest in history. But the energy relief portion of the check was $662. That is the portion that will not be considered taxable by the IRS. That leaves $2,622 as the taxable amount of the 2022 PFD.

Issued on Friday, the IRS guidance clears up uncertainty that had earlier prompted the agency to tell taxpayers to hold off in filing their taxes until the agency could provide some answers. Alaska was not the only state to provide various sorts of rebates or refunds last year.

The new guidance follows, as provided by the IRS:

The Internal Revenue Service provided details today clarifying the federal tax status involving special payments made by 21 states in 2022.

The IRS has determined that in the interest of sound tax administration and other factors, taxpayers in many states will not need to report these payments on their 2022 tax returns.

During a review, the IRS determined it will not challenge the taxability of payments related to general welfare and disaster relief. This means that people in the following states do not need to report these state payments on their 2022 tax return: California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Maine, New Jersey, New Mexico, New York, Oregon, Pennsylvania and Rhode Island. Alaska is in this group as well, but please see below for more nuanced information.

In addition, many people in Georgia, Massachusetts, South Carolina and Virginia also will not include state payments in income for federal tax purposes if they meet certain requirements. For these individuals, state payments will not be included for federal tax purposes if the payment is a refund of state taxes paid and either the recipient claimed the standard deduction or itemized their deductions but did not receive a tax benefit.

The IRS appreciates the patience of taxpayers, tax professionals, software companies and state tax administrators as the IRS and Treasury worked to resolve this unique and complex situation.

The IRS is aware of questions involving special tax refunds or payments made by certain states related to the pandemic and its associated consequences in 2022. A variety of state programs distributed these payments in 2022 and the rules surrounding their treatment for federal income tax purposes are complex. While in general payments made by states are includable in income for federal tax purposes, there are exceptions that would apply to many of the payments made by states in 2022.

To assist taxpayers who have received these payments file their returns in a timely fashion, the IRS is providing the additional information below.

Refund of state taxes paid

If the payment is a refund of state taxes paid and either the recipient claimed the standard deduction or itemized their deductions but did not receive a tax benefit (for example, because the $10,000 tax deduction limit applied) the payment is not included in income for federal tax purposes.

Payments from the following states in 2022 fall in this category and will be excluded from income for federal tax purposes unless the recipient received a tax benefit in the year the taxes were deducted.

  • Georgia
  • Massachusetts
  • South Carolina
  • Virginia

General welfare and disaster relief payments

If a payment is made for the promotion of the general welfare or as a disaster relief payment, for example related to the outgoing pandemic, it may be excludable from income for federal tax purposes under the General Welfare Doctrine or as a Qualified Disaster Relief Payment. Determining whether payments qualify for these exceptions is a complex fact intensive inquiry that depends on a number of considerations.

The IRS has reviewed the types of payments made by various states in 2022 that may fall in these categories and 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 for individuals who are now attempting to file their federal income tax returns, the IRS has determined that in the best interest of sound tax administration and given the fact that the pandemic emergency declaration is ending in May, 2023 making this an issue only for the 2022 tax year, if a taxpayer does not include the amount of one of these payments in its 2022 income for federal income tax purposes, the IRS will not challenge the treatment of the 2022 payment as excludable for income on an original or amended return.

Payments from the following states fall in this category and the IRS will not challenge the treatment of these payments as excludable for federal income tax purposes in 2022.

  • Alaska [1]
  • California
  • Colorado
  • Connecticut
  • Delaware
  • Florida
  • Hawaii
  • Idaho
  • Illinois [2]
  • Indiana
  • Maine
  • New Jersey
  • New Mexico
  • New York2
  • Oregon
  • Pennsylvania
  • Rhode Island

For a list of the specific payments to which this applies, please see this chart.

Other payments

Other payments that may have been made by states are generally includable in income for federal income tax purposes. This includes the annual payment of Alaska’s Permanent Fund Dividend and any payments from states provided as compensation to workers.

[1] Only for the supplemental Energy Relief Payment received in addition to the annual Permanent Fund Dividend.

[2] Illinois and New York issued multiple payments and in each case one of the payments was a refund of taxes, which should be treated as noted above, and one of the payments is in the category of disaster relief payment.

18 COMMENTS

  1. The IRS is the greatest bipartisan screw job in history.

    Lincoln signed it into law, and Roosevelt took it to unprecedented heights.

    And it’s still unconstitutional as hell, but nobody in DC wants to upset the gravy train.

  2. I do not file for or take the PFD but did try to find a way to file for the Energy relief $662.00 but was told to forget it as the legislature made it part of the PFD filing….I got the same answer years ago when Governor Palin pushed though and energy relief act….

  3. Too many tax regulations for even the IRS to figure out. Maybe we do need a 5% flat tax instead of all these manipulations and use of taxation to engineer social policy.

    • Seems to me like none of these governments have an income problem but all have a terrible spending problem….we need to reduce the size and scope of all governments many of our agencies or departments could just be done away with and we would all be better off…

  4. So there’s no tax on the free money that y’all get that was added on top of the other free money y’all get. And still Alaskans whine that it’s not “our fair share”. Cry me a river.

  5. So is Alaska PFD office going to correct the 1099’s? Send out a new one not including the energy funds?
    What about those who already filed their taxes and paid taxes on the energy relief funds?

  9. Can we get an actual link to a website that shows the IRS stating this exactly?

    Because the link you posted only sends you to a list of “State Payments”

    When you click the Alaska link it brings you to the State webpage stating that the full $3284 is taxable income and should be reported as such on a federal tax return.

    Where is the IRS guidance stating how to report your PFD? As of now, the $3284 is the correct amount, and if you submit a tax return stating less than the full amount of the PFD, the IRS will adjust your refund or increase your tax due by the correct amount.

    The IRS will go with what they know we all got: $3284 as reported on a 1099-Misc that the State of Alaska issued all of us and submitted copies of said 1099-Misc to the IRS for their records.

  10. For once, some good news from the IRS??? Maybe one of those 80,000 new workers is secretly looking out for the little guy.

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