State refunds and other state payments will not be counted as income for some taxpayers.

According to recent IRS guidance, State Tax Refunds and certain other payments made by state or local governments will not be considered as income for most taxpayers. This guidance clarifies that taxpayers who choose the standard deduction and receive state tax refunds are exempted from reporting the refund in their federal income tax returns. Moreover, individuals who obtained payments from the state for social benefit programs are not compelled to report the funds on their federal income tax returns, as long as the source is a governmental fund. This rule will be applied to 21 states that issued welfare payments during the COVID-19 pandemic, including Rhode Island and Florida.

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