In 2022, 21 states issued special relief payments to eligible residents in 2022. The Tax Foundation has a partial list of state rebate checks.

But do these state relief checks count as taxable income at the federal level? After taking a bit to think about it, the IRS has issued official guidance on how to account for these payments while filing your federal income taxes. Please see the full details there, but here is a quick summary below. For most people, the payments will not be taxable.

Filers in the following 17 states do NOT need to report “general welfare and disaster relief payments” from their state on their 2022 tax return:

• Alaska*
• California
• Colorado
• Connecticut
• Delaware
• Florida
• Hawaii
• Idaho
• Illinois*
• Indiana
• Maine
• New Jersey
• New Mexico
• New York*
• Oregon
• Pennsylvania
• Rhode Island

For individuals in the remaining 4 states listed below, 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.

• Georgia
• Massachusetts
• South Carolina
• Virginia

(* For Alaska, this applies only for the supplemental Energy Relief Payment received in addition to the annual Permanent Fund Dividend. Illinois and New York issued multiple payments and in each case one of the payments was a refund of taxes, which should be treated as noted above, and one of the payments is in the category of disaster relief payment.)

For example, in California, residents who received a California Middle Class Tax Refund (MCTR) of $600 or more received a 1099-MISC form. I am not a tax advisor, but based on this IRS guidance, you should not have to report this income on your federal taxes. If you already filed, you may need to file an amended return.

Updated for 2022. This year, the deadline for federal tax filing is Monday, April 18th, 2022. If you file for an extension before midnight on that date passes, you can extend the time allowed to file your return by six months to October 17, 2022. It does not extend the time to pay any tax due. There are many legitimate reasons to ask for such an extension, and the extension is granted automatically without needing to provide a specific reason.

The Failure to File Penalty is 5% of the unpaid taxes for each month (or part of the month) that the tax return is late (without extension). The Failure to Pay penalty is 90% less: 0.5% of your balance due for each month (or part of a month).

In addition, you can instantly e-file a federal and state tax extension (where available) for free. Advantages of using e-File include:

• You save the time and postage costs of paper mailings.
• You can estimate your tax liability using online software and/or calculators.
• You receive confirmation of receipt via e-mail or text, often within hours.
• The potential convenience of filing your state tax extension online at the same time.

TaxACT

This is how I usually do my extension because they include state as well. Tax prep software TaxACT.com allows you to e-File your Federal and State extension (where applicable) for free through them. You don’t need to actually use them to file your taxes later, although you certainly can.

Directions
First, register for free at TaxACT.com with your e-mail address and pick a password if you haven’t previously. Next, if you wish to perform a state tax extension, you must go to the “State” menu option on the left and add the appropriate state tax return. You don’t need to fill it out, just add it so they know what state you are filing for. If asked, just pick the “File Free” option, you shouldn’t need to enter any payment information. Some states don’t even require a separate filing, but TaxAct supports the electronic filing of extension forms for the following states:

• Arizona
• California
• District of Columbia
• Kentucky
• Louisiana
• Maryland
• Massachusetts
• New Jersey
• North Carolina
• Pennsylvania
• Tennessee
• Texas

To go directly to the extension form, click on the “Filing” tab on the left menu, and then the “File Extension” link right below it. You will be able to choose whether to file extension for Federal, State, or both. You will then be guided through the Form 4868 in a question-and-answer format. TaxACT will file the form electronically for you (or you can print and snail mail).

TaxACT also provides a tax liability estimator to help you determine if you need to make a payment with your extension. If you fill out more details in the main software, then the estimate will be improved. If you don’t think you’ll owe any taxes, you can just put down zero as your expected tax liability. If you wish to make a tax payment, you will be able to choose to pay with direct withdrawal from a bank account (account and routing numbers required) or pay with a credit card (IRS fees apply).

Afterward, you can confirm the status of your extension e-file by going to efstatus.taxact.com. They will even send you a confirmation via e-mail or text message. I got my confirmation less than 3 hours after submission.

TurboTax

TurboTax.com also allows you to file a Federal extension online for free after signing up for a free account. They are rather vague on state tax extensions, stating that they will only show the state extension option where available after you have completed the majority of your state return. (Doesn’t this kind of defeat the purpose?) After logging in, look for the big search box on the top right and type in the keyword “extend” to be directed to their extension section.

It will walk you through the information needed for Form 4868. Again, if you don’t think you’ll owe any taxes, you can just put down zero as your expected tax liability. If you wish to make a tax payment, you will be able to choose to pay with direct withdrawal from a bank account (account and routing numbers required) or pay with a credit card (IRS fees apply). The site states that you’ll get a confirmation from TurboTax within 48 hours.

H&R Block

The option to e-file in H&R Block is little hidden, and they say “A deposit may be required.” But if you already plan to use H&R Block, here’s how to find it. You must go to the dashboard/main filing page and look for this small link in the bottom right corner:

Free File Fillable Forms

As the name suggests, FreeFileFillableForms.com is another privately-run site (actually owned by Intuit, not the IRS) that allows you to fill out Federal IRS forms online, for free. They are basically the exact same paper forms that the IRS would provide you, with no additional guidance or assistance. State tax extensions are not included.

For some reason, they make you create a new account every year. After you’re signed in, on the top left of Form 1040 you should see an icon with the label “File an Extension”.

This will bring up Form 4868. Click around the form to fill the boxes out. As above, you’ll need to estimate your total tax liability, but since this is just an online version of the form so there is no guidance included. You can request your estimated tax payment to be withdrawn electronically by supplying your bank’s routing and account numbers. For identification purposes, you’ll need your adjusted gross income (AGI) from your previous year tax return.

Bottom line. There are many options to e-file your tax extension for free. Confirmation is usually provided within 48 hours, as opposed to having to worry about if your paper form got snail-mailed to the IRS successfully. Filing an extension only extends the time to file your return and does not extend the time to pay any tax due. To avoid late payment penalties and interest you must estimate what tax will be due and pay that when you file the extension. However, the penalty for late filing is many times higher than the penalty for late payment. If you are not 100% sure you can file in time, file for an extension.

The American Rescue Plan Act (ARPA) of 2021 “enhances” the Child Tax Credit, increasing it to up to $3,600 for each child under 6 and $3,000 for each one under age 18. Eligible parents will receive half in advance via direct payments spread out equally over the last 6 months of 2021 (starting July 15th). The other half will be received when you file your tax return. This breaks down to:

• For each qualifying child under age 6, six monthly payments of up to $300 each ($1,800 total, half of $3,600).
• For each qualifying child over age 6 and under age 18, up to six monthly payments of up to $250 each ($1,500 total, half of $3,000).

The IRS released the following new tools to help you manage this process:

• Advance Child Tax Credit Eligibility Assistant.
• Child Tax Credit Update Portal. This one requires authentication of your identity. Although the initial button says “Unenroll me”, which is a bit scary-sounding, it really just helps you manage the tax credit. You’ll be able to see your history of payments as well.
• Child Tax Credit Non-filer Sign-up Tool. If you did not file a 2020 tax return, this tool may help you get these payments.

These advance payment amounts begin to be reduced if your modified adjusted gross income (MAGI) exceeds:

• $150,000 if married and filing a joint return or if filing as a qualifying widow or widower;
• $112,500 if filing as head of household; or
• $75,000 if you are a single filer or are married and filing a separate return.

Kiplinger has a calculator if you’re that phase-out area. You may still be eligible for the “standard” child tax credit when you file your 2021 tax return. These tax credits are now also fully refundable, which is important for those with lower incomes that can’t fully take advantage of these tax credits otherwise.

It’s quite likely you won’t need to use any of these tools, although I still used them to confirm our eligibility. For most households, the payments will automatically be sent to the bank account and/or address used for your previous tax returns. Just be on the lookout around July 15th, 2021. These tools are meant for those that don’t file tax returns, their tax situation has changed significantly since their last return, or otherwise need help updating how their payments are handled.

Also: Expanded Child and Dependent Care Tax Credit. A reminder that there is also an increased tax credit towards childcare/dependent care for 2021.

• For 2021, now worth up to $4,000 for one qualifying individual or $8,000 for two or more. More expenses are eligible, at a higher percentage. The net increase in value could be worth up to $5,900 (see chart below).
• Now fully refundable.
• Qualifying children are under the age of 13 for the entire year.