Qualifying Californians continue to receive stimulus checks of up to $1,050 in February as it helps them soften the inflation blow. The $308 billion state budget signed by Democrat Gov. Gavin Newsom in June delivered direct tax refunds to 23 million Californians as they struggled with inflation which jumped 8.3% year-to-year.
The Middle-Class Tax Refund (MCTR), a one-off Stimulus Check, automatically delivered payments ranging between $200 and $1,050 to state tax individuals and joint filers. The payments started much later in October 2022 and were initially slated to conclude by the second week of January 2023. But procedural delays have led to the final payments being postponed through February 2023.
The Newsom administration predicts that the remaining 5% of the Stimulus Checks that remained pending into the new year will be completely disbursed by then barring a few thousand, mostly those who could not be contacted.
The Stimulus Check has varied depending on income tax filing status, and the presence of dependents in the income tax return. The payments are based on the Adjusted Gross Income as reported in the 2020 California income tax return.
Only residents who have filed their income tax returns by October 17, 2021, are eligible for the payments of the Middle-Class Tax Refund. The payments were sent out on a staggered system that was divided based on the AGI and divided into three tiers.
Residents with an individual AGI of $75,000 or less in their state income tax return for 2020 received $50 plus another $350 if they included any dependent in the returns. For joint filers during the same period and with a combined AGI of $150,000 or less, the amount doubles to $700 plus another $350 if the joint filers include any dependent.
Thus a joint filer in this tier stands to receive the highest amount possible under this Middle-Class Tax Refund payment.
The second tier is for individuals with an AGI between $75,001 and $125,000. For joint filers, the corresponding AGI is between $125,001 and $250,000. Filers will determine whether individuals receive $250 each plus another $250 if they include any dependents.
It may be noted that the amount that is given out for dependents remains the same irrespective of the number of dependents. The maximum tax refund possible in this tier was $750.
The highest AGI tier is for individuals with a 2020 AGI of between $150,001 and $250,000, while for joint filers it is between $250,001 and $500,000. Filers in this tier received a $200 stimulus check for individuals and $400 for joint filers. The inclusion of dependents guaranteed the filers another $200. Thus the maximum that filers in this tier can expect is $600 if the family files a joint return and includes any dependent.
Filers earning above this income did not receive any Stimulus Check under the Middle-Class Tax Rebate.
IRS Declares California Middle-Class Tax Refund Stimulus Check Not Taxable
After a long suspense, the IRS finally issued guidance on Friday that indicated many states will not have to pay federal taxes on the inflation relief stimulus check. And California is included in this list as its Middle-Class Tax Rebate will not attract any federal income tax.
The guidance has earmarked the Golden State’s inflation relief payment as part of what it has termed as a general disaster and welfare relief payment. It further declared that beneficiaries will not have to declare them in their 2022 federal income tax return to be filed in the first quarter of 2023.
The IRS has clarified that the payment was made as a promotion as a disaster relief payment or a general welfare payment. In this case, it was directly linked to the pandemic and its aftermath. For that reason, the tax authorities have excluded this income from federal taxation either as a Qualified Disaster Relief Payment or as part of the General Welfare Doctrine.
The clarification from the IRS came after lawmakers in California called on them to clear the contentious issue that had beneficiaries confused and on tenterhooks. In addition, a group of lawmakers from the Golden State even sent a letter to President Biden asking that MCTR payments be exempt from federal income tax.
One of the legislators said that the state administration should ensure the protection of its precious tax dollars. It should also ensure that residents continue to persevere through a difficult economic situation and are not subject to double taxation. It was not acceptable he stressed.
Residents of California have been apprehensive about the Stimulus Check issue since January to receive guidance about Middle-Class Tax Rebate payments. Many residents have also not received any payment and the MCTR debit card payments were diverted due to fraud.
The IRS has declared that filers will not have to report their Stimulus Checks as income on their federal income tax returns for 2022 to be filed in the first quarter of 2023. Filers can thus ignore the federal 1099-MISC form sent out last month by the state Franchise Tax Board.
The IRS was for weeks hesitant to give a ruling on the treatment of the $200 to $1,050 that filers received under the Middle-Class Tax Refund. The confusion rose from the fact that the payments were not tax refunds in the true sense but could also be interpreted as a handout, for the lack of a better tag.
If they were true tax refund Stimulus Checks, they would be considered taxable income by the feds only for the recipients who itemized their deductions and write off their state taxes.
Rules Regarding State Stimulus Checks Apply For Most States
Given the complexity of the situation, the tax authorities. While the rules are not uniform for all the 20 odd states, most states also fall under the same category as the Golden State. The IRS released a list of states who fall under the same category as the Golden State.
They include Alaska, Colorado, Delaware, Florida, Connecticut, Hawaii, Idaho, Indiana, Illinois, New Jersey, Maine, Oregon, New York, Rhode Island, and Pennsylvania.
The state income tax board, the Franchise Tax Board (FTB) has revealed that residents experiencing issues with the MCTR are to call the customer service of Money Network at 800-542-9332. Details are available on the Franchise Tax Board’s website.