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Wednesday, December 7, 2022

Will The New State Stimulus Check Be Taxable? With Millions Of Inflation Relief Payments Going Out, Residents Are Confused

In the absence of any form of federal direct support in 2022, states have stepped in with stimulus checks of their own in various forms. With prices touching record levels, Americans are hard-pressed to manage their finances as they have recorded negative growth in wages despite a healthy rise in wages compared to pre-pandemic levels.

When the three rounds of the Economic Impact Payment were delivered by the federal administration, the Internal Revenue Service had ruled out any form of taxes being charged on the money received. The answer had been a firm no on both the state and federal stimulus checks. As with the federal stimulus payments, the inflation stimulus checks are also non-taxable.

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The main reason behind this logic is that none of such payments are part of the adjusted gross income of an individual or a couple. That is the reason that such income cannot be subjected to taxes.

It is also a matter to note that many of the stimulus checks were part of a tax refund, even though they may have been given as an advance. And tax refunds do not alter the gross income of a beneficiary and thus are never taxable.

The state stimulus checks come even as the   US is battling record inflation rates that have broken a four-decade record. the inflation rate has remained above the 8.5% mark for much of 2022 and even touched 9.1% in June, the highest since November 1981.

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Repeated efforts by the Federal Reserve to contest high consumer price indices had been unsuccessful. This is even though federal interest rates have been increased thrice in a row in 2022 to contain high rates of everything from gasoline to groceries.

The Bureau of Labor Statistics has let on that the year-on-year inflation rate was 88.6% in July, and 3% in August, and the verified inter-annual inflation rate was an alarming 9.1% in June.

Low and moderate-income families and individuals have been the worst affected along with pensioners who live on a fixed income and haven’t received any further increase to cope with the inflationary pressure.

The federal administration has revealed that while short-term measures are being initiated, the high rate of inflation is not going to go away anytime soon.

The unprecedented inflation has led to an attack by the Republicans who have seized on this opportunity to flog Biden even as the midterms are due next month.

Many Americans Yet To Collect Their Federal Stimulus Checks

Despite every attempt to rein in the inflation rate, the Federal Government has also revealed that between 9 and 10 million Americans are still eligible for stimulus checks as revealed by both Treasury and IRS data.

The biggest challenge that both the Treasury and the IRS faced in 2020 was that they could base their payment only on citizens who have filed their income tax previously.

The low-income people who did not need to pay taxes but who deserved the stimulus checks the most were left out of the pandemic stimulus payments and also the expanded Child Tax Credit stimulus checks.

By the middle of 2021, the Treasury Inspector General’s office had identified 10 million more individuals who were potentially eligible for payment but who had been left out of the payments as they were not on the records of the IRS.

Despite every attempt to include more people, many families, mostly Blacks, Latinos, and immigrants were left out of the list and continued to be deprived of any form of federal support.

The federal government has still to track down millions to enable them to send out the stimulus check that they desperately need at this moment, more so as they face a huge spike in inflation.

With State Stimulus Checks Fuel Another Round Of Inflation?

With no fresh declaration from the federal government which remains gridlocked in Washington politics, the states are dipping into their budget surplus and their share of the Rescue Plan funds.

Conservative economists have squarely laid the blame for the rising prices on the successive stimulus check while the Republicans have specifically attacked the American Rescue Plan Act, the third round, and the previous two rounds were signed by their president.

The Biden administration has consistently maintained that the inflation was fueled by supply chain gridlock and the war in Europe. Internal issues, especially the stimulus checks, had a very small role in it. This has been partially borne out by the fact that the major economies of Europe and the UK are also facing inflation. But that does not explain the reason it is lower by around 3 percentage points on average.

The Federal Reserve of San Francisco released an analysis that showed that  US inflation has increasingly outpaced inflation in the developed economies of the world, especially the European and UK economies.

The Fed revealed that only a third of the current bout of high inflation in the US was demand driven. It underscored the difficulties faced by the central bankers in cooling down the high inflation rate.

They estimate that the financial support measures that were designed to counteract the severity of the economic downturn of the pandemic may have been the contributing factor to this discrepancy. Prices in the US continue to rise quicker than in any other leading world economy.

Detractors of the practice of putting money directly in American pockets and bank accounts warn that it was the prime cause of inflation and allowed it to get worse than it otherwise would have been.

The phase of steadily mounting inflation may be over for now high prices will likely stick around for a much longer while. Even the September consumer price index (CPI) rose 8.2% over the past 12 months, way higher than what experts had predicted and President Biden had hoped for, especially with the midterms around the corner.

While the gasoline price index fell by 4.9% in the month, the third straight monthly decline, Housing, medical care, and food prices saw higher price increases.

This sustained core inflation has prompted the Federal Reserve to continue with its hawkish stance, especially as the labor market has held up well. The Fed has raised interest rates to a range of 3% to 3.25%, a dramatic increase in a short period.

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