Important New Tax Guidance from DRS, IRS on Connecticut Hero Payments
April 12, 2024
In response to inquiries from Connecticut tax practitioners, the Department of Revenue Services and Internal Revenue Service have issued guidance on the taxability of Connecticut's "Hero Payments."
Updated IRS Guidance from Senior Stakeholder Liaison Joseph McCarthy:
While these payments ARE subject to federal income tax, the payments are NOT subject to federal self-employment tax even though they were reported on a form 1099NEC.
- No corrected 1099s will be issued by Public Partnerships LLC for Hero payments.
- If a Hero payment is included in gross income on a tax return the IRS will not issue a notice due to self-employment tax not being reported on the tax return.
- In the event that an IRS notice is issued by the IRS due to self-employment tax not being reported on a tax return the recipient should respond to the notice explaining that the 1099 NEC is for CT Premium Pay Program (Hero) payments and is not self-employment income.
For additional information, please contact Joe McCarthy at 203-415-1015 or Joseph.S.McCarthy@irs.gov.
DRS Guidance:
"The Connecticut Premium Pay Program was established by the General Assembly to provide financial relief to essential workers employed during the pandemic. Under this Program, eligible workers received payments of up to $1,000. As many of these payments were received during taxable year 2023, taxpayers and practitioners have inquired as to the taxability of said payments in connection with their preparation of income tax returns for said taxable year. As explained below, the Comptroller’s Office has specifically addressed the taxability of such payments.
To that end, in connection with its administration of the Connecticut Premium Pay Program, the Comptroller’s Office issued a series of frequently asked questions (“FAQs”). Consistent with this guidance, payments received under the Connecticut Premium Pay Program are taxable as a matter of federal law. Consequently, the only way that said payments would not be taxable under Connecticut law would be if the General Assembly enacted legislation exempting such payments from Connecticut income tax. Based on a review of Conn. Gen. Stat. § 31-901, said statute does not contain a provision excluding such payments from Connecticut income tax.
Therefore, taxpayers who received a payment under the Connecticut Premium Pay Program during taxable year 2023 from the Comptroller’s Office would be required to include said payment in determining their federal income tax for said taxable year. Moreover, as there is no modification in Connecticut law that authorizes taxpayers to exclude such payments from Connecticut income tax, said payments will be taken into account for purposes of determining their Connecticut income tax liability for taxable year 2023."
The DRS has indicated that returns should be amended if they were filed incorrectly.