Are State Stimulus payments taxable on the Federal return?

[xmasbaby0]

State stimulus payments are not taxable.

[ph451]

I know they are non-taxable for State, but what about Federal?  The reason I question this is because  stimulus payments received with unemployment are taxable on the Federal return.  Please provide a federal source that addresses this issue.  Thanks

[Critter-3]

NO ... the feds do not tax any stimulus payments from the feds or state. 

If you want a more specific answer can you at least post which state and what kind of program  it was from ? 

[xmasbaby0]

Please explain what you mean by "stimulus payments received with unemployment".  

[ph451]

To each unemployment check received in 2021. California added a additional $300 stimulus payment.

Except for unemployment exclusion in 2020. all of the unemployment received  (including ca stimulus ) was taxable income for federal tax.  This is why I seem to think that the CA Golden State Stimulus II of $600 might be taxable.  I cannot find any info on irs.gov or caFTB,gov that states otherwise.  If you can find something specific on either web site, I would sure appreciate it.  Thanks, Pat

[xmasbaby0]

That extra $300 a week you were getting with your state unemployment was federal money....funneled from the federal government to the state's  unemployment funds.  The feds are not taxing your golden state stimulus money.

However----the exclusion of federal tax on the first $10,200 of unemployment was for 2020.   There has not been a law from passed by Congress that excludes any of the unemployment received in 2021 from federal tax.

So...if you received unemployment in 2021 you will need to enter your 1099G from the state very carefully.

[xmasbaby0]

• The stimulus payment is not taxable for California state income tax purposes. The stimulus payment will not be subject to offset for debts owed to Franchise Tax Board or other government agencies. The Golden State Stimulus payments are not subject to withholding orders.

www.ftb.ca.gov/about-ftb/newsroom/public-service-bulletins/2021-18-golden-state-stimulus-ii.html

California Golden State Stimulus II | FTB.ca.gov

[ph451]

If the 2020 SUI stimulus addition was Federal Money, Why did we have to include it as taxable income on our 2020 federal tax return?  For 2021, we will again have stimulus included in unemployment  payments on 1099G.

Not very consistent.  I guess I can wait to see if California issues a 1099G for the Golden State Stimulus II. If they don't issue one then I guess it is non-taxable for Fed.

Thanks for your help.

[ph451]

Thank You for your time.  But the memo does not address taxability for Federal Tax.

[Vanessa A · Accepted solution]

No, the state stimulus payments would be looked at similar to welfare benefits, they are not taxable on your federal return. 

[LA2022]

My understanding is that welfare is not taxed if means-based (income and assets checked).  Otherwise, it is taxable.  Since the CA stimulus payments did not have anyone demonstrate their need or perform a means test, I don't believe this is resolved.  I did some reading on the general welfare exclusion, and there was a case where a taxpayer received a stimulus payment from the City of Berlin for the purpose of revitalizing the economy (kind of like CA did).  IRS taxed it.  They deemed NYC payments out of a September 11, 2001 fund as taxable.  The IRS also clarifies in Notice 2012-75 and Rev Proc 2014-35 that "grants received under social welfare programs that do not require recipients to establish individual need do not qualify under the general welfare exclusion."  Bailey v. Commissioner.  Determined under the federal income tax laws.....not state, local, sovereign tribal, etc.  While I see instances of the General Welfare Exclusion exempting disaster relief funds, the examples I see go specifically toward a personal need like food, housing, etc.  The GSS payments were not restricted as to how they could be spent.  I just do not think it is very clear and taxpayers did not receive a tax document, so we are having to ask if they received these payments.   I could maybe justify the GSS 1 payment made if someone received the CA EITC.  I have trouble with the GSS II being need based if it was given to anyone whose income was below the $75k/$150k threshold.  No matter, we still don't have anything concrete.

[LA2022]

But they do tax stimulus payments made by other countries?  Foley v Commissioner.

I would just like your source.  You sound like you know this 100%, so where did you go to make this determination?   Some of us just want that same certainty....I am asking specifically about the Golden State Stimulus payments.  I would love for the payments to be non-taxable, but I just don't feel we have enough guidance to make the determination.  And it is such a small amount....

[PattiF]

From the Caltax forum:

Is the CA Stimulus going to be Federally taxable? Will we need to report it on the returns (either way)?

• December 1, 2021, at 11:41 am

  Mark Bole

  Participant

  Almost certainly not.  There is an administrative exception to taxable income, called the “General Welfare Exception” (GWE), which applies.

  “To qualify under the GWE, payments must

  http://www.journalofaccountancy.com/issues/2006/may/generalwelfareexclusion.html

  I believe this is also why such items as the California Premium Assistance Subsidy or other refundable tax credits are also not taxable.

  • Be made from a government fund.
  • Be for the promotion of the general welfare, based on individual or family need.
  • Not be made as payment for services. “

@LA2022

[LA2022]

Hi Patty.  I would classify that as an opinion.  I have seen it.  I am saying I read up on the GWE after seeing that and reading the Journal of Accountancy article (and others).  The article you reference does not refer to a cash payment to spend on whatever, but payments toward housing, subsistence, etc.    They are mainly in disaster zones.

That info below is also not complete when referencing requirements for the GWE.  It omits the part where "grants  received under social welfare programs that [do] not require recipients to establish individual need do not qualify under the general welfare exclusion.  Bailey v. Commissioner, 88 T.C. ...." Found that on p. 3 of Rev Proc 2014-35.  

Based on what I have read so far, it doesn't seem to qualify for an exclusion.  Maybe the IRS speaks up, maybe the Feds just decide to be nice and not tax it, but I have found nothing federally that addresses the  state stimulus payments.  Based on Federal law, the payments don't seem to pass muster with the GWE.