CA Middle class tax refund

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Will the CA Middle Class Tax Refund be taxable to the IRS as income?

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Bsch4477Answer

Level 15

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.

Bsch4477

Answer

Level 15

The inflation relief payments are not taxable income for California state tax purposes.

Ranger93Author

Level 2

Thanks for your answer. Just to be clear for me if I took the standard deduction last year this payment should not be taxable to the IRS. Correct?

Thank you.

Bsch4477

Level 15

Correct!

bbsm

Level 2

They are now claiming is not actually a refund, which is why is on 1099 MISC not 1099g

DMarkM1

Alumni - Intuit

The Middle Class Tax Refund (MCTR) is not taxable on the CA tax return, but no guidance has been provided by the IRS as to whether or not it is taxable on the federal tax return. Be sure to find the "Payers" box on your 1099-MISC to verify that "MCTR" is indicated as the source.

Since you received a 1099-MISC with the MCTR payment in box 3, you should go through the comprehensive 1099-MISC flow in TurboTax to enter the amount.

However you should wait for an update to complete and file your returns. In a future update there will be a checkbox to confirm that the payment is for the CA MCTR. On the federal tax return, the MCTR payment will then reflect as a positive amount, as well as a separate negative amount. Therefore, TurboTax software will not treat this payment as federal taxable income.

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gdahlin

Level 2

Thanks for the update!

sudz1949

Level 2

If you haven't heard, as of last night (02/10/2023), the IRS has determined that the Middle Class Refund for California WILL NOT BE TAXED for 2022 income tax year. In other terms, they are handling these refunds the same way they handled Federal stimulus amounts issued; not to be reported as income.😁

Mike9349

Level 2

According to news reports in early February 2023, the California Middle Class Tax Refund (MCTR) is no longer taxable as Federal or State income. I did receive a 1099 MISC-MCTR from the California Franchise Tax Board. So, the question I have is...do I enter this information in the income part of Turbo Tax, and Turbo Tax just ignores it as income? I'm thinking that I just leave this 1099 MISC off my Turbo Tax information. Thanks Mike!