(NEXSTAR) – With tax season officially open, some Californians may be receiving an extra bit of paperwork from the state: a 1099-MISC showing proof of their Middle Class Tax Refund, or “inflation relief” payment.
California legislators approved the payments last summer to help combat rising prices of gas, food and just about everything else. The state’s Franchise Tax Board has been issuing the direct payments since October as direct deposits or debit cards, depending on the recipient. The payments range in size from $200 to $1,050 depending on your income, tax filing status and number of dependents.
The direct payments have been sent out automatically based on Californians’ 2020 tax information. Now, as they prepare to file their 2022 taxes, some inflation relief recipients will need to report the payments as income, according to the Franchise Tax Board (FTB).
The first important thing to note, the FTB says, is that there’s a difference here between state taxes and federal taxes. As far as California state taxes are concerned, the Middle Class Tax Refund (MCTR) is not taxable income, a FTB spokesperson told Nexstar. That means you don’t need to claim your inflation relief payment — no matter the size — on your California income tax return.
However, the MCTR “may be considered federal income,” according to the FTB. For that reason, the state is sending out 1099-MISC forms to anyone who received a payment of $600 or more.
San Diego-based tax attorney Adam Brewer said the money is indeed taxable when it comes to the federal return, and warns that the $600 number is not a threshold for who has to report the income.
“Just because you received less than $600 and didn’t get a 1099-MISC, it doesn’t mean it’s tax-free,” Brewer told Nexstar. “It just means you’re not going to get a reminder about it, and the IRS isn’t going to get a copy, you know, so they’re not going to know to look for it, but that doesn’t mean it’s a tax-free payment.”
Brewer added that taxpayers should also pay attention to the rate at which the money will be taxed. The payments should be subject to ordinary income tax and not the 15.3% applicable to business income reported using a 1099-MISC.
If you have further questions about your tax return when it comes to the direct payments, the FTB suggests talking to a tax professional. The agency has also posted more tax information on its website.
If you’re waiting to receive a 1099-MISC from the state, the FTB asks you wait until Feb. 15 before asking for a replacement. If you still haven’t received a form after Feb. 15, and your MCTR payment was $600 or more, you can request one by calling 1-800-852-5711.
The tax filing deadline is on April 18, 2023. Californians impacted by recent storms have until May 15.