"The California state Franchise Tax Board says the payments, like ordinary tax refunds, will not be subject to California income taxes — lawmakers explicitly excluded them from the state’s definition of taxable income. But underscoring the unusual nature of the payments, the board will not be sending recipients the federal tax form (1099-G) that the state would issue if it were a tax refund.
Here’s where the federal tax picture gets complicated. If this were a refund of state taxes paid, anyone who’d claimed the standard deduction on their federal returns would not have to report the income on their 1040s next year. And the vast majority of taxpayers, particularly on the low to middle rungs of the income ladder, take the standard deduction. Only taxpayers who itemize their deductions and deduct their state income taxes on their federal returns will have to report the state refund as income to the IRS.
But because it’s more of a rebate than a refund, there’s no clear guidance from the IRS for how it will treat the money. And, according to IRS Publication 525, income is generally taxable unless it’s specifically exempted by federal law."
The source for this article is the Los Angeles Times
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