From CalMatters economy reporter Grace Gedye:
When gas prices were soaring in 2022 and Califorina’s state budget had a ballooning surplus, lawmakers decided to send relief payments to millions of residents to help with rising costs.
In recent months, the money has been flowing: The state has issued more than 7 million direct deposits and 9.4 million debit cards, ranging in value from $200 to $1,050.
Some Californians who think they qualify for the payment haven’t received it, and are struggling to get their questions answered.
But the people who have received a Middle Class Tax Refund also have a problem: What to do about taxes?
Tax season is officially upon us, so some people who want their refunds as soon as possible have already started filing their returns.
California officials have made it clear that people don’t need to claim the payment as income on their state tax return.
But on the question of federal taxes, Californians have been left in limbo.
The state’s tax board says the payments may be considered federally taxable income. Last week, the Internal Revenue Service essentially told people in California and other states where state relief payments were sent out to hold off on filing their taxes while they work out what clarification they can offer.
- IRS: “For taxpayers uncertain about the taxability of their state payments, the IRS recommends they wait until additional guidance is available or consult with a reputable tax professional.”
An IRS spokesperson confirmed on Thursday afternoon that this was still the agency’s stance.
On Wednesday, a group of Republican state lawmakers called on the Biden administration to exempt the payments from federal income taxes.
- The GOP letter to President Biden: “Middle class Californians should not be taxed twice on their own refunds.”
Luckily, many Californians have more time to file their taxes this year. Both the federal and state have extended the filing deadline for individual returns from April 18 to May 15 for people in areas affected by the winter storms.
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