IRS Announces that Californians Will Not Have to Report the 2022 Middle Class Tax Refund

The IRS announced today that 21 states that issued special payments to their residents will not have report those payments for federal income tax purposes. This comes a great relief after tax advisers have been debating the proper way to handle these 1099 forms issued by the California Franchise Tax Board (FTB) and other state taxing authorities.

Californians that received a California Middle Class Tax Refund (MCTR) of $600 or more were issued a 1099-MISC from the FTB for tax year 2022. The FTB previously announced that this would not be taxable for California state income tax purposes but it was unclear what the IRS decision would be for federal income taxes. Many tax professionals advised their clients to delay filing their 2022 tax returns until IRS guidance was released. For those that filed early and did not report it, potential mismatches in reported income could have led to notices such as IRS CP2000.

The IRS has stated that they will not challenge the taxability of payments related to general welfare and disaster relief. It is still important to make sure that the MCTR is handled properly and one should consult a tax professional if uncertain how to proceed.