IRS Finally Declares California Middle-Class Refunds Non-Taxable: Says MCTR To Be Treated On Par With Other Stimulus Checks

stimulus check COLA

Over 23 million residents of the Golden State qualified for the California Middle-Class Tax Refund, comprising around 60% of the population. A total of 18 million stimulus checks will go out finally when the payments are completed by the end of February 2023.

As prices of goods and services skyrocketed, millions of Americans struggled to recover from the economic setbacks of the COVID-19 pandemic. They finally received partial relief from the state governments. The relief came in the form of stimulus checks, tax rebates, gas, and transit cards, and sales tax waivers on certain goods and services.

The payments were technically labeled as tax refunds and were meant to help address the skyrocketing prices of goods and services that have assailed Americans since the pandemic.

The California stimulus checks were initially proposed by California Gov. Gavin Newsom as gas cards worth $400 to be given to every vehicle registered in the state. Families were to be given a maximum of two cards. Families and individuals without cards were to be given transit cards.

Eligibility For The Tax Refund Stimulus Checks

To be eligible for the tax refunds, residents must have filed their state income tax returns for 2020 before the extended deadline of October 17, 2021. This will automatically qualify them for the stimulus checks subject to the fact that they have fulfilled all other criteria for receiving the payments.

The payments went out to individuals with an Adjusted Gross Income of $250,000 or less for individuals and $500,000 or less for married couples filing jointly. 2020 was taken as the tax year for consultation while the presence of at least one dependent made a difference to the total stimulus check amount.

Stimulus Check

The payments were part of the $308 billion state budget and were cleared by Gov. Newsom back in June 2022. But the payments were timed for the festive season in the last quarter of 2022.

Qualifying For The California Stimulus Check

Residents with an individual AGI of $75,000 or less for the 2020 tax year and married couples filing jointly and with an AGI of $150,000 or less for the 2020 tax year received the payments depending on the number of the inclusion of dependents in their tax returns.

The payments ranged from $200 to $1,050 for individuals and families and were based on three income tiers.

The payments were to be completed by January 14 this year but the final round of payments through debit cards were delayed by certain factors including the fact that they were sent out through the US Postal Service which delayed the payment by around 2 weeks on average.

The final criteria for receiving the payments through debit cards was that the residents must have filed a state income tax through a paper return. They must also have a balance due. Further requisites include the fact that they should have received the earlier rounds of payments, the Golden State Stimulus Check payments by paper check sent through the US Postal Service.

Filers should also have received their income tax refund by check regardless of the method of filing the income tax returns. They must also have received their income tax refund for 2020 by direct deposit, but later changed their banking institution or their bank account number.

Residents who received an advance payment from their tax service provider or paid their income tax preparer fees using their tax refund will also have to look up their mailboxes for the stimulus check payments under the Middle-Class Tax Refund.

 IRS Confirms Status Of California Inflation Stimulus Checks

As millions of California remained worried about paying taxes on the middle-class tax refunds they received in the past quarter of 2022, the IRS has finally come up with a clarification.

Californians have finally received the low-awaited piece of news. The IRS has finally decided the tax fate of special state payments, or stimulus checks made to around 23 million residents through 18 million direct deposits and debit cards.

The Golden State has already sent out $9 billion in surplus funds that have at last count benefitted around 31 million eligible residents, according to the Franchise Tax Board of California.

stimulus check
stimulus check

Around 2 weeks ago the Internal Revenue Service had asked Californians and state stimulus check beneficiaries in other states that have sent out state stimulus checks to delay filing their income tax return for 2022 till the IRS clarified the issue and a decision was made about the special payments. The agency has now finally announced that they will not tax the California Middle-Class Tax Refund payments.

The IRS has finally issued guidance to filers across the country that most states that have sent out the state inflation relief payments in 2022 will not have to pay any form of federal taxes. With the ruling by the Internal Revenue Service that the state stimulus check is not taxable, taxpayers in 21 states can now move forward with filing their 2022 income tax returns.

Even as the 2023 tax season got underway, the IRS had earlier urged those in states where inflation relief payments were sent to wait for a final clarification from the authorities. Residents in such states will now not be required to include such payments as part of their income tax returns for 2022.

Of the 21 states, 17 provided general welfare and disaster relief payments. Those states are California, Alaska, Connecticut, Colorado, Florida, Delaware, Hawaii, Illinois, Idaho, Indiana, New Jersey, Maine, New York, New Mexico, Pennsylvania, Rhode Island, and Oregon.

For the four other states, filers do not have to list the state payments if it is considered a refund of state taxes paid and the recipient either itemized their deduction or claimed the standard deduction but did not receive any tax benefit. The IRS has said that while many of the rules surrounding the payments were made as inflation relief in 2022.

State governments, both Democrats and Republicans, that paid out the inflation relief checks welcomed the move. Colorado Governor Jared Polis said that people have breathed a sigh of relief that the federal government and the IRS stepped away from taxing the refunds this year. He said that he should continue to strive to maintain this precedence and that TABOR refunds should never come under federal taxes.