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Recipients of State Stimulus Checks Need Not Report Payments as Taxable Income

Recipients of State Stimulus Checks Need Not Report Payments as Taxable Income

By Yehudit Garmaise

New Yorkers who received state stimulus payments in October 2022, after claiming the state's child tax credit or the state's earned income credit do not have to report their checks as income on their federal income tax returns, the Internal Revenue Service (IRS) said on Feb. 24.

While many taxpayers and lawmakers applaud the IRS’s decision to reduce US residents’ tax burdens, others question the IRS’s latest move to forego as much $4 billion in revenue as Biden faces a ballooning federal deficit and feverish measures taken by the US Treasury Department to avoid defaulting on the nation’s shocking $31.4 trillion debt, the New York Times reported.

Decades of tax cuts and increased government spending by both Democrats and Republicans caused the country to borrow so much money that the US has reached its debt ceiling, or the maximum amount that the nation can legally borrow.

Not taxing stimulus payments is in line with the government’s usual practice not to tax payments for general welfare and disaster relief.

At a time, however, when the Federal Reserve is steadily raising interest rates to try to reduce consumer spending to lower prices, allowing residents to avoid paying taxes on their state rebates could further worsen the money woes of the US.

Residents who have more money in their pockets will increase spending and thwart the Fed’s efforts to cool the economy. 

In fact, according to the Fed’s favored gauge of inflation, The Personal Consumption Expenditures price index, in late 2022, consumers were spending less and inflation was slowing: until personal spending shot up in January 2023. 

More than 20 states provided the individual tax rate cuts or rebates last year after the $1.9 trillion stimulus package $350 billion to states and cities, which were left with record budget surpluses that were sent to residents to supplement their incomes.

photo credit: Flickr


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