Covid-19 Essential Employee Premium Payments of $500 taxable?

[Colmatt]

Covid-19 Essential Employee Premium Payments of $500 taxable? No Form 1099-G received yet.

[BobKamman]

That's probably another one that IRS is thinking about now that it's February.  It wouldn't be on a 1099-G, that's for tax refunds and unemployment.  And it wouldn't be on 1099-MISC because it's under $600.  

[qbteachmt]

Taxable per the IRS (since it is payment for services): https://www.irs.gov/newsroom/frequently-asked-questions-for-states-and-local-governments-on-taxabili...

You can do a web search for the specific State, such as:

https://canons.sog.unc.edu/2022/01/american-rescue-plan-act-coronavirus-state-and-local-fiscal-recov...

https://www.mass.gov/info-details/covid-19-essential-employee-premium-pay-program

[BobKamman]

Unlikely that FAQ issued by IRS in November 2021 is good authority for a program enacted in Massachusetts in December 2021.  Is that where you are located?  In Massachusetts It was based on earning a minimum amount, without regard to how many hours employed; then limited to taxpayers with incomes less than three times poverty level.  If you call that "compensation for services," then you should call EIC the same, and a lot of states may be in trouble for their state EIC program.

[Colmatt]

I would agree however literally attached to the check it said, " Anyone who receives a COVID-19 Essential Employee Premium Payment form the Commonwealth of Mass during 2022 will receive a Form 1099-G" ......which of course we didn't receive.

[Colmatt]

Excellent, thank you.

[Colmatt]

Yes Mass.  Are you leaning to not taxable Federal then?

[BobKamman]

But then the Massachusetts state website says, 

Q. Will premium payments be treated as taxable income?

Under current law, premium payments are not subject to state income tax but may be subject to federal income tax. Because the IRS reporting threshold for taxable grants is $600, no 1099-G will be issued from the Department of Revenue. 

https://www.mass.gov/info-details/covid-19-essential-employee-premium-pay-program#additional-informa... 

[BobKamman]

I live in a state where the legislative attitude is that women should be barefoot and in the kitchen. We don’t even have a deduction or credit for childcare expenses. I was surprised by how many states now have an EIC, in many cases refundable. I assume IRS somewhere has said those refunds are not taxable. I would compare these payments, to those. But now that IRS has said they are looking into “questions involving special tax refunds or payments made by states in 2022,” I would wait to see what they come up with.

Note that for Massachusetts, everyone is an essential worker. “Your eligibility is not determined by the industry in which you work.”

IRS says “we are working with state tax officials as quickly as possible to provide additional information and clarity for taxpayers.” Which is weird, because at least in California, state tax officials have been telling taxpayers to call IRS.

[Colmatt]

I know, thanks MASS.  I keep showing that to people who don't believe me that they won't get one....then I give them the DOR phone number.  

[Colmatt]

So wait I guess...

[qbteachmt]

Okay, so it will be on a 1099-G, if it meets the reporting limit.

Not getting a 1099-G, is not the same as not reporting it. What you just learned by knowing if it is reportable, that would be on a 1099-G, is the nature of the payment and how it would be handled. You can see the 1099-Misc questions for the people whose states gave them funds under the guise of rebate or supplement. The Governmental payout for services is described by the IRS for how to handle the funds.

"Unlikely that FAQ issued by IRS in November 2021 is good authority for a program enacted in Massachusetts in December 2021."

Agree to disagree. That reference is the Feds' commentary on something they were involved with, and meets what was asked here.

[BobKamman · Accepted solution]

IRS will figure out eventually that two things happened in Massachusetts last year, and their "Announcement" covers only one of them.  

Massachusetts gave back about 14% of the 2021 state income tax paid by residents, and that's subject to the rules on state income tax refunds.  Taxable, if there was a tax benefit from it.  Taxpayers who did not itemize, or who could not claim it because of the $10K SALT limit, can ignore it.  

But the "Essential Employee Premium Payments" were a different program.  It was enacted in late 2021, which may be why it fell through the IRS cracks.  Payments did not require that the recipient paid any state income tax, and they were means-tested so high-AGI residents did not qualify.  They did require earned income to be shown on the 2021 return, but everyone was considered essential.  This was not compensation for services, any more than state EIC programs are compensation for services.  So ignore it.  Unless you want to wait for IRS to get its act together. 

[Colmatt]

I agree exactly.   Thank you