IRS gives new guidance on state tax rebate issue in Massachusetts; Accountant says most 'shouldn't worry'

BOSTON - After telling millions in Massachusetts and other states to hold off on filing their taxes, the IRS on Friday issued new guidance addressing the tax rebates sent to residents in 2022. And it's good news for most taxpayers in the state. 

"Many people" in Massachusetts, as well as Georgia, South Carolina and Virginia, will not have to report their rebate checks as income on their federal returns if they meet some 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 said. About 90% of taxpayers claim the standard deduction.

The payments gave about 3 million taxpayers in Massachusetts roughly 14% of what they paid in personal income for 2021, thanks to an obscure state law passed by voters in 1986.    

That money "will be excluded from income for federal tax purposes unless the recipient received a tax benefit in the year the taxes were deducted," the IRS said.

Brenda Breton, a tax accountant with Snow & Breton in Malden, said the new guidance means the rebates shouldn't be a concern for most in the state.

"Many taxpayers at this point stick to taking the standard deduction - so I'd say most taxpayers shouldn't worry about this," she told WBZ-TV. "The rebate checks were not large amounts either, so it wouldn't make a significant difference on the taxpayer's refund."

Taxpayers in states that issued payments related to "general welfare and disaster relief" won't have to report the income on their tax returns either, the IRS said. 

Click here to read the full announcement from the IRS.

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