The inflation relief payments are not taxable income for California state tax purposes.
For federal tax purposes, the rebate is a tax refund. If you claim state taxes on your itemized deductions, you will generally need to report the payment as federal taxable income. If you don’t claim state taxes on your itemized deductions, you generally won’t need to report the payment as income on your federal taxes.
The reason for the above is that the rebate means you paid less in state taxes. If you had $1,000 in tax withholding but got a $350 refund, you really only paid $650 in taxes. So if you claimed a $1,000 tax deduction, you have to report the $350 refund as income since your deduction was too big.
