CA Middle class tax refund

[Ranger93]

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

[Bsch4477 · Accepted solution]

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.

[Ranger93]

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 · Accepted solution]

Correct!

[gdahlin]

I have received such a refund, and itemized my deductions.  Where do I enter this amount in TTax 2022 Home & Biz for Windows?

Thanks for your help!

[Bsch4477]

It is not yet clear how the IRS will treat this rebate so do nothing yet. You can’t file for several months so be patient. 

[gdahlin]

I'm trying to determine if I need to make an estimated tax payment.

[bbsm]

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

[DMarkM1]

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. 

[gdahlin]

Thanks for the update!

[mjljjl]

Do you know when the update will happen? I will need to file my taxes before Feb 6.   

[Bsch4477]

One post said January 27. 

[tremllojh]

Following your answer, I went through the comprehensive 1099-MISC flow to enter the California Middle Class Tax Refund I received. As a consequence, the amount is shown on Schedule 1 and my federal taxes increased as expected. However, my California taxes increased as well which they shouldn't because the CA MCTR is supposedly non-taxable in California. I assume that the TurboTax update you mentioned will correct this. Is this true?

I received the Debit card for the CA MCTR just in January 2023. This raises the question if it should be specified on the 2022 tax return or the 2023 tax return? In the meantime, I received a 1099-MISC from the State of California Franchise Tax Board as well specifying that it is for the calendar year 2022.

I guess I should wait with the submission of my tax returns until the questions concerning the CA MCTR have been answered satisfactorily.

[zhezhang]

The latest TurboTax update (Jan 26) does include the California Middle Class Tax Refund option, and it is considered not taxable.

When you enter the 1099-MISC, on the 3rd page "Does one of these uncommon situations apply?", there is an item:

"This was a California Middle Class Tax Refund. "

If you click this, a note will appear at the bottom of the page:

The California Middle Class Tax Refund (MCTR) will not be taxable on your California or Federal returns.

[Th1968]

Hi.  I tried that…I selected the appropriate box but I’m still getting error messages for my tax returns.   They keep getting rejected.  It seems like it would be easier just to remove the 1099 misc for MCTR.  The bottom message says it’s not taxable for California state or federal anyway. Every time TurboTax check for errors they dont find anything.  But when I submit efile my returns they keep getting rejected due to error codes for MCTR . It happened twice to me.