On Friday, the IRS indicated that by the following week, it may provide clarification on whether or not California’s Middle-Class Tax Refund payments are taxable as income for federal tax purposes.
California’s Franchise Tax Board (FTB) has distributed over $9 billion to over 31 million taxpayers and their dependents as of last month.
California Issues 1099-MISC Forms
The agency had previously stated that it was formulating guidelines for the 19 states that offered refunds in 2022. The IRS has said it will provide more information for as many states and taxpayers as possible by the end of next week.
According to the Franchise Tax Board, California has sent 6.4 million 1099-MISC forms to MCTR recipients who received at least $600. For joint filers who make less than $250,000 and have a qualifying dependent, the payments are capped at $1,050. The tax board distributed 16.6 million payments totaling $9 billion between October and January.
Some MCTR tax filers discovered they couldn’t submit their tax returns using TurboTax during the first week of tax season. When Bill, a reader who wrote to us to vent his frustration, attempted to submit his federal tax return, the system spit out a rejected message.
Days later, the system was updated, and Bill claimed he could file his tax return. At that time, he was taxed $160 on his $700 MCTR payment. He mentioned that his son, who also used TurboTax, was not subject to taxes.
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2023 Tax Refund
Several people would argue that the MCTR was intended to be a disaster relief payment, and Publication 525 provides some hints that it would be.
Assembly Bill 192, also referred to as the Better for Families Tax Refund, was drafted by the legislature and Governor Gavin Newsom in the summer of 2022. In order to assist taxpayers who were paying record-high prices for basic necessities like gasoline, food, and utilities, $9 billion from the state budget surplus would be returned.
According to Publication 25, taxpayers may exclude from income any amount they receive that qualifies as a qualified disaster relief payment. An amount paid (Item 4) by a federal, state, or local government, agency, or instrumentality in connection with a qualified disaster in order to advance the public good is referred to as a qualified disaster relief payment.
Be sure to call the Money Network and FTB early in the day and stay in the phone tree until you find a human who can answer your questions if you’re still having trouble figuring out your MCTR eligibility or status. Call 1-800-240-0223
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