Confirmed: Inflation refund checks will need to be reported to the IRS.
Millions of New York residents started to receive the inflation refund checks approved by Governor Kathy Hochul.
However, many are unaware that these payments, intended to alleviate the impact of rising prices, are not entirely tax-free.
Although New York State considers them exempt at the local level, the federal government classifies them as taxable income.
This means that beneficiaries will have to include the amount in their declaration before the Internal Revenue Service (IRS) in 2025.
Who receives the checks and how much is paid?
Refunds began being distributed in late September to more than eight million middle-class taxpayers. The amount varies depending on income reported in 2023.
Single taxpayers receive $200 if they earned up to $75, and $150 if their income was between $75 and $150. Couples who filed joint returns receive $400 if they earned up to $150, and $300 if their income was between $150 and $300.
Checks are sent automatically to the address registered on the tax return, without the need to request them. The state Department of Taxation and Finance explained that distribution is proceeding in stages, as the postal service only processes about 200 deliveries per day.
Why should these payments be reported to the IRS?
The program seeks to alleviate economic pressure on households, but the federal government considers it taxable income. In practice, this will reduce the net benefit for those who receive it.
For example, a person who receives a $200 check and is in the 22% tax bracket will end up with about $156 after paying federal taxes, according to local media estimates.
The Tax Policy Institute questioned the decision to issue checks instead of tax credits, arguing that it favors the federal government. Its executive director, Nathan Gusdorf, stated, “We already believed this was not an efficient use of state funds. To top it all off, it now unnecessarily increases the total amount of taxes paid to the federal government.”
What should beneficiaries do?
Taxpayers must to declare the amount received on your next federal return. The state will not offer the electronic deposit option, even if you received refunds via wire transfer in previous years.
If the beneficiary has changed their address, they must update their address online to avoid delays. Submission depends on the order in which the 2023 returns were processed, and is only considered complete when the document has been reviewed and approved by the tax authorities.