Has TT received any specific IRS guidance, on whether 2022 CA gas tax / inflation rebate is taxable?

[CA_Joe]

I got a 1099-MISC for an amount over $600, was surprised.

Generally, items of income are taxed for Fed unless expressly excluded by Code.

This matter is unclear, for Fed but not for CA.  Different answers from different sources.

[Bsch4477 · Accepted solution]

The IRS has not yet said that the payment is tax exempt and lacking that it would appear to be taxed. TurboTax program has anticipated this. 

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. 

[DianeW777]

The Tax benefit rule,  IRS Publication 525, will determine if it is taxable on the federal return.  

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.

If any of the amount was used as a deduction on your federal return in 2021, then some or all of it may be taxable on the 2022 return. 

@CA_Joe

[CA_Joe]

Understand.  Has TT expressly requested an answer from the IRS?  How will I know if they do answer and if the income is determined to be not taxable?

[DianeW777]

Since we have no actual written authority from the IRS as of now, and this is a refund of California (CA) tax which would have been considered income earned and taxed previously, i.e., refund of tax, it should not be taxable unless you specifically deducted tax through itemized deductions in a prior year.

Our tax expert @VolvoGirl has also provided additional guidance specific to your question:

• 'There was a new Turbo Tax program update yesterday on Jan 26, 2023.  The CA MCTR is now not taxable for federal and state.  When you enter the 1099Misc box 3 it should ask ....Do any of the uncommon situations apply?  And in my Desktop program the 3rd item listed is California Middle Class Tax Refund. 
• When you click on that then at the bottom it will say....The California Middle Class Tax Refund (MCTR) will not be taxable on your California or federal returns.

@CA_Joe

[Slow Reader]

That is now fixed.  However, filing is rejected by Federal and CA state today 4 times.  Hopefully this will be fixed  in next Thursday's update.

[CURTISS]

The Federal is still taxed  after doing this

[CURTISS]

It still shows up as other income on schedule 1 Line 8z so nothing has been fixed.

[Chucker689]

The MCTR was not a refund of prior income tax, so it could not have been deductible in a prior year as such. For this reason the MCTR was reported on 1099-misc, not a 1099-G. While it’s called a tax refund, it’s not clear what type of tax or if such a tax was ever deductible on a personal Fed return.

[Kkulkev21]

It came up as "not taxed at both federal or state level" on my return and I just submitted and both State and federal were accepted without any problems.

[CA_Joe]

I am nowhere near filing, but have a draft return in progress that I continue to tweak.  Just checked, federal still shows the amount on Form 1040, line 8 as taxable.

[CA_Joe]

My amount was over $600 ... the level that generated the CA 1099-MISC.

[Kkulkev21]

Not sure why you are seeing as being taxed. In my case, deleting it and adding it back on, didn't make any changes to my refund amount. Again, I didn't look at the return in "Forms" view but in my case, I didn't see the amount being taxed.

[CA_Joe]

Just re-checked, still makes noticeable difference.  Deleted, then restored.

[JamesG1]

Have you tried deleting the 1099-MISC and re-entering following these steps?

• Select Federal from the left side menu.
• Click on Wages & Income.
• Scroll down to Other Common Income.  Click Show more.
• Click Start / Revisit to the right of 1099-Misc.
• At the screen Does one of these uncommon situations apply? select This was a California Middle Class Tax Refund.

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

View the entries at Tax Tools / Print Center / Print, save or preview this year's return / Include government and TurboTax worksheets.

@CURTISS