California Middle class Tax Refund

[t3523wd]

I received my California Middle Class Income Tax Refund in late January, 2023.  However, my 1099-MISC is for 2022.  Should I report the income for 2022 or wait for 2023? 

[VolvoGirl]

Put it on 2022.  It won't affect your return, it is now not taxable for federal or state.  

[Opus 17]

Sorry, if this is an additional refund of state income tax, it is treated like all other refunds of state tax.  It is not deductible if you used the standard deduction for your 2021 income taxes, but it may be taxable if you used itemized deductions and deducted your state income tax.  (It's taxable because it is a rebate or refund of something you previously deducted.)

Turbotax can figure this out for you if you modify your program input.  Go to the "refund of state income tax" section on the income page.  Add the rebate amount to whatever your previous refund was.  In other words, Turbotax will normally say something like "last year, you got a California refund of $500, is that correct?"  Say no, and add the amount of the rebate to your regular refund.  Turbotax will ask some other questions to determine if the refund/rebate is all or partly taxable.  (If you did not use Turbotax last year, the program will ask "did you get a state tax refund" and will then ask questions about last years tax return.  Add the rebate to the amount of your regular refund.)

As to timing, if you did not physically receive the check or bank deposit until 2023, you are not required to report it until 2023.  But, the FTB or the IRS may send you a letter and a tax assessment if they believe this was 2022 income, and you would have to reply with an explanation and proof.  It may be simpler to report it for 2022 even though that is not technically correct. 

[Opus 17]

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@VolvoGirl wrote:

Put it on 2022.  It won't affect your return, it is now not taxable for federal or state.  

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If it's a rebate or refund of state income taxes, then it should be added to any other state income tax refund and the usual rules on taxability of refunds applies (the tax benefit rule). 

[VolvoGirl · Accepted solution]

It is on a 1099Misc not a 1099G

There was a new Turbo Tax program update yesterday on Jan 26, 2023. The CA MCTR is now not taxable for federal and state. When you enter the 1099Misc box 3 it should ask ....Do any of the uncommon situations apply? And in my Desktop program the 3rd item listed is California Middle Class Tax Refund.

When you click on that then at the bottom it will say....The California Middle Class Tax Refund (MCTR) will not be taxable on your California or federal returns.

[t3523wd]

Can you point me to your source on it's exclusion from Federal Taxation?  I haven't been able to find anything that supports the exclusion from Federal Taxation in my research.

[VolvoGirl]

Screen shot

[VolvoGirl]

I was posting the screen shot for Opus 17.  But I haven't found anything on the IRS website or CA yet either about it being not taxable. 

[t3523wd]

I agree with your advice about including in 2022 income so it will match against the 1099 that was erroneously issued by California. 

The California's Franchise Tax Board has issued a 1099-MISC rather than a 1099-G that is traditionally issued for tax refunds.  This makes what they have called a "Middle Class Tax Refund" look more like a handout rather than a return of my money.  Unfortunately, much like the Inflation Reduction Act the Dems like to camouflage their give aways to make them more acceptable to We The People as the redistribute our wealth.

[t3523wd]

I'm using TT Premier and haven't been able to find this.  However, given that your update was on January 26 it might still be coming.  Thanks for the info.

[VolvoGirl]

Have you updated the program?   Go up to the top black menu bar, click on Online then Check for Updates.  

[VolvoGirl]

Did you go here to enter it?

Go to Federal (Personal for H&B)> Wages & Income (Personal Income)
Click on I'll Choose what I work on
Scroll down to Other Common Income, then Income from 1099Misc

[Opus 17]

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@VolvoGirl wrote:

I was posting the screen shot for Opus 17.  But I haven't found anything on the IRS website or CA yet either about it being not taxable. 

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I accept what Turbotax is doing, but I don't understand or agree with it, without more information.

Virginia issued a rebate in 2022 and it is clearly an income tax rebate and is supposed to be handled like any other state income tax refund.  I don't know why CA would be different.  Even if it was completely free money to anyone living in CA, it should be federally taxable, like the Alaska permanent fund (as far as I understand things). 

[t3523wd]

I am up to date with my TT Premier version and haven't been able to find a screen or info like VolvoGirl has posted from her Home and Business Version.  I am going to wait it out for awhile and see what the other 40 million  people in California  turn up now that tax season is in full swing.  I suspect it is really not a tax "refund" reported on a 1099-G but some other give away on a 1099-MISC and probably taxable by the IRS.

[BrittanyS]

The California Middle Class Tax Refund is not taxable on the California tax return but residence still may receive a 1099-MISC with the MCTR payment listed in box 3.  You will enter this into TurboTax Online by following these steps:

1. Click on Wage & Income
2. Click show more on Other Common Income
3. Click Form 1099-MISC
4. Fill out the form as it appear on your 1099-MISC
5. Enter the description of the reason for the 1099-MISC
6. The next screen has an option for you to indicate the 1099-MISC is for the MCTR

Please see the picture below: