Numerous financial assistance programs have been available during the pandemic to help Americans get through a difficult period for the US economy. There were numerous other instances throughout the pandemic emergency declaration, but the 3 phases of federal stimulus checks were the most well-known. Most recipients won’t be subject to taxes on their payments under the emergency designation. However, there are still some significant differences between two common types of tax-exempt assistance: stimulus checks and catastrophe relief.
Stimulus Check
Economic impact payments, also known as stimulus checks, were dispersed by the US government during the initial two years of the epidemic. They were created to provide Americans suffering from the financial effects of COVID-19 with short-term financial respite. Disaster relief payments and stimulus reimbursements are both exempt from federal taxes. The phrase “stimulus check” has also been used to refer to several state-led programs that were put in place in 2022 to assist citizens who were experiencing a prolonged period of high inflation. These kinds of payments were given out by more than 20 states last year, most notably the Middle Class Tax Refund in California.
Disaster Distribution
In most cases, early distribution taxes of 10% are applied to any funds that participants in retirement plans prematurely take from their retirement pots. The Disaster Tax Relief and Airport and Airway Extension Act of 2017 did, however, permit early withdrawal for those affected by nationally declared disasters. Since the pandemic was declared a government emergency in March 2020 and will remain so until May 11, 2023, anyone who takes an early withdrawal to cover pandemic-related costs is exempt from paying taxes.
The array of assistance initiatives launched by states in 2022 was unprecedented and raised a new query for the IRS. Filers started the 2023 tax season without a clear answer on whether the relief payouts were considered taxable income because the tax agency was slow to provide advice. The IRS recommended that beneficiaries postpone filing their taxes until a decision was made at the beginning of February reports AS USA.
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