Are State Stimulus payments taxable on the Federal return?

[ph451]

No,  neither is taxable to Federal or State.   The 1040 asks if you got the Fed stimulus.  If you got it, you report the amount you got.  Then the matter is closed if you got what you were entitled to.  By reporting the amount you got.  if you were paid short, you will get the balance due you in your refund.

However, if the amount you report differs from what the IRS thinks you got,  it will delay your refund while the IRS traces the payment.  So, be sure that you report the correct amount--- don't guess.  Check your bank records to be sure.

[Mara5]

If IRS website says "NO" to this question, then why is TT including the stimulus money in calculating taxes due? 

[DianeW777]

The stimulus payments, state or federal are not taxable to you. If you received the third economic impact payment and entered that information in the Federal Review tab, it is not being taxed.  It is only being reconciled to see if you received all you were entitled to before filing your 2021 tax return. TurboTax would not be including any state stimulus payments unless the amounts were entered in the tax return.  

We need more clarification about what you are seeing so that we can better assist you.

@Mara5

[Mara5]

When I first entered the stimulus amount, the tax refund changed to tax due.  So I started again, and the second time it did not change - must've entered something different that made that happen the first time.

Thank you!

[ldlittman]

I got a 1099 Misc from the State of California for a $700 stimulus payment. So this clearly means that I need to report it on my federal return under 1099 misc...correct?? I added it to my 1099 forms.  It says on the form that I need to report it to the IRS. We need clearer answers on this from Turbo Tax.

[ph451 · Accepted solution]

MCTR is non taxable but needs to be reported as income on schedule 1 Line 8.  It is then reported on  sch 1 line 24 to adjust the income out.  For California    Line 8 description  should be  CA-MCTR.

Non taxable, but needs to be reported and then adjusted out on schedule 1

[AbrahamT]

In answer to your question, it is not taxable to the state. However, it is not yet determined if it is taxable for federal purposes. It goes under the category of the Middle-Class Tax Refund. To learn more, you can contact the CA Franchise Tax Board at 800-542-9332  or visit this link for more details HERE.

[jdcosgrove]

How do I enter the information you described in the Turbo Tax "step by step" format. 

[DaveF1006]

If this stimulus check was issued by the state of California, the check is not taxable income either on the federal or state level if:

1. If it qualifies under the General Welfare Exception, then it isn't taxable. To qualify it must be:

• Be made from a government fund.
• Be for the promotion of the general welfare, based on individual or family need.
• Not be made as payment for services. 

@jdcosgrove

[ph451 · Accepted solution]

enter the1099.M form  -- other income (as a 1099-Misc)    Direct the income to go to Schedule 1 Line 8 (other income).

pull Schedule 1.  go to line 8,  Enter in description  Ca-MCTR   - enter amount as a negative on the line.

This will reverse the amount from income.  

The tax institute instructs you to enter the adjustment on Line 24 of adjustments to income (enter as a positive number}.  This will also reverse the income from taxable income.

[Critter-3]

The payment is taxable by Federal but not by California. 

To report on Federal >Income >choose what I want to work on >Other common income >1099-misc>other income. Report the Middle Class Refund and follow the prompts. 

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. 

[ph451]

Wrong -  MCTR is non-taxable for Federal

[DianeW777]

It depends and it's possible. Since this is a tax refund from California (CA), it would seem the income was already taxed on your federal return when you earned the income.  However, if you deducted the CA tax on your federal return, as an itemized deduction or as a business expense, then it could be considered taxable income when refunded, if necessary, under the Tax Benefit Rule.

• Tax benefit rule.  IRS Publication 525  You must include a recovery in your income in the year you receive it up to the amount by which the deduction or credit you took for the recovered amount reduced your tax in the earlier year. For this purpose, any increase to an amount carried over to the current year that resulted from the deduction or credit is considered to have reduced your tax in the earlier year.

1099-MISC income tax information (CA Update 2022) Individuals who received a California Middle Class Tax Refund (MCTR) of $600 or more will receive a 1099-MISC for this payment.

@ph451

[ShawnC753]

I did what you stated on my return and it zeroed out the amount of the stimulus, but it did not reverse it out of my refund.  Do you know why?

[ph451]

the revenue (1099-M) and adjustment (Sch1 line 😎 will zero out on line8 Sch 1.   This will not affect the bottom line refund.  All you are doing is reversing the 1099-misc income with a negative adjust in the same amount.  Because it is adjusted on Federal, no income will go to State.