I received a Middle Class Tax Refund from the state of california. Is this considered taxable income? I received a 1099-Misc form

[Bsch4477]

Yes, it is income for federal but not for California. 

[SharonD007]

No, the Middle Class Tax Refund from California is not taxable to CA, and you do not need to claim it as income on your California tax return.  Please see the link from the Franchise Tax Board Help With The Middle Class Tax Refund.

However, the Middle Class Tax Refund may be taxable on your federal tax return which is why CA will be mailing 1099-MISC for MCTR payments of $600 or more.  The IRS has not provided a clear answer on this issue but IRS Pub502 states “an amount included in your income is taxable unless it is specifically exempted by law” which this type of payment is not.  Income that is taxable must be reported on your return and is subject to tax. See the link for more information IRS Pub 525 Taxable and Non-Taxable Income.

[Ace in Space]

My understanding is since this a tax refund, it is not taxable on the federal return if you use the standard deduction on the federal return.  If you itemize deductions and deduct state income tax, then some part of it is taxable since you received some tax benefit from the deduction .  It should have been reported on a 1099-G.  2022 Turbo Tax should be modified to handle this. 

[Bsch4477]

See @SharonD007 post. 

[Ace in Space]

Federal 525 refers to reporting state refunds it if you had deducted them.  There is no state deduction if you use the standard deduction.

[Ace in Space]

Here is the wording in Pub 525:

State tax refund.  If you received a state or local income tax refund (or credit or offset) in 2022, you must generally include it in income if you deducted the tax in an earlier year.

If you use the standard  deduction in 2022 then you did not deduct it and it gave you no benefit to your taxes. Therefore you do not have to claim it as income.  The state is just returning your money that you over paid in taxes.  If you itemize, the software will figure out what benefit you got in reduction to your taxes.  That is what you will have to pay.

Unfortunately Turbo Tax has no easy way to handle this in 2022 at this time.  If you put it in as a 1099-MISC, it will show it as income for both federal and state tax.  It should have been issued as a 1099-G.  Turbo Tax would then ask you if you itemized or took the standard deduction and do the correct action (no tax for standard deduction, tax based on how you benefitted from the deduction if you itemize).

Stay tuned for how this gets resolved.

[ZhuoliA]

Middle Class tax refund from the state of California is not considered taxable income for California state income tax purposes. For federal purposes, the IRS hasn't issued specific guidance for the treatment of these payments, and they may be taxable.

Please see this post for more information.

@rrfisher916

[Ace in Space]

Unfortunately post is no help for Turbo Tax desktop users as we have no access to the software listed.

[Bsch4477]

Tax refund would be on form 1099-G. The Middle Class Rebate is reported on 1099-misc. 

[Ace in Space]

Don't put it past the state of California to issue it on the wrong form.  Since they didn't have IRS guidance they issued it on 1099-MISC.  It's still a refund.

[VolvoGirl]

I entered it on my Desktop Home & Business

Enter the CA Middle Class Tax Rebate on a 1099Misc and put the amount in box 3. It will show up as Other Income on Schedule 1 line 8z which flows to 1040 line 8.

Go to Federal (Personal for HB)  > Wages & Income, might need to continue though the general screens.
When you come to the Wages - Your Income screen click on Add Income or
scroll down to Other Common Income, then 1099Misc.
Put the amount in box 3 and follow the prompts.
On the page with a long list of reasons pick None of these apply -Continue.
Say No it did not involve work -Continue
You got it in 2022 -Continue

On California section you will see HERE’s INCOME THAT CALIFORNIA HANDLES DIFFERENTLY. Scroll down to Miscellaneous and scroll down to MIDDLE CLASS TAX REFUND and follow the prompts to exclude the income from CA.

[VolvoGirl]

OK those steps were for the Online version.  Here is my Desktop steps

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
I entered St of California and put the amount in box 3 and follow the prompts
Describe the reason….CA Middle Class Tax Refund
On the page with a long list of reasons pick None of these apply -Continue.
Say No it did not involve work -Continue
You got it in 2022 -Continue

[Ace in Space]

Then go to Schedule 1 line 24z and put in the negative value of the refund.  Add description that it is not taxable since you took standard deduction and received no tax benefit from a state tax deduction.  This takes it out of federal and state.

[BillM223]

Despite its name, the California Middle Class Tax Refund is not a refund of state tax like the one you pay every year. Instead, "The Middle Class Tax Refund (MCTR) is a one-time payment to provide relief to Californians."

Instead, it is a one-time payment from the State Treasury to help middle class residents deal with inflation. How you deal with it has nothing to do with last year's Standard Deduction or any of the proposed calculations trying to determine if it is taxable or not.