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Will You Have to Pay Taxes on Your California Middle Class Tax Refund?

Will You Have to Pay Taxes on Your California Middle Class Tax Refund?

What to Know

  • The deadline for your 2022 taxes is April 18
  • You may be able to skip hiring a tax professional
  • California’s Middle Class Tax Refunds won’t be taxed by the state; IRS unsure about federal taxes

As tax time rolls around, many filers in California are wondering: Was the state’s Middle Class Tax Refund taxable?

Most people living in California got their refunds in 2022, but, for some, that direct deposit or debit-style card didn’t arrive till this year. Anybody who got theirs on Jan. 1 or later won’t need to worry about the taxation questions till next year.

There’s a misconception that people fall into certain tax brackets, but that’s not true. Rather, every dollar a person earns falls into a specific tax bracket. Here’s how tax brackets work.

Also know by the names “Gas Tax Refund” and “Inflation Relief Payment,” the Middle-Class Tax Refund was issued to nearly 12.5 million Californians. Depending on your income and your tax filing status, you could receive anywhere between $200 and $1,050 if you filed a state tax return in 2020 and still live in California.

State officials said last year that they wouldn’t be taxing the payment. NBC 7 asked the IRS if the federal government would be taxing the windfall, but, unfortunately, a decision has yet to be made. Instead, the IRS is urging filers to wait for further clarification.

The IRS is aware of questions involving special tax refunds or payments made by states in 2022; we are working with state tax officials as quickly as possible to provide additional information and clarity for taxpayers. There are a variety of state programs that distributed these payments in 2022, and the rules surrounding them are complex. We expect to provide additional clarity for as many states and taxpayers as possible next week.

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. For taxpayers and tax preparers with questions, the best course of action is to wait for additional clarification on state payments rather than calling the IRS. We also do not recommend amending a previously filed 2022 return.

However, if you were one of the Californians who received the money in 2023, you do not have to wait. That money won’t have to be reported until filing next year’s return.

State leaders set aside $17 billion to pay for the program for California taxpayers.

Tax Filing Tips, 2023-Style

There are so many ways to file your taxes. There are free online programs, paid software and even tax professionals. But how do you know which one is best for you?

Generally, the more complicated your return, the better off you’ll be going with a tax professional. Filing your taxes can take a lot of time, so make sure you’re not rushing to file or gather documents.

The Internal Revenue Service estimates it takes the average self-filer about eight hours to put together their return. And that’s just for the average filer with minimal forms. 

If this describes you, filing yourself with the help of an online program or tax software might be your best bet.

But when should you hire a professional? If you’re self-employed, a professional can help make sure you’re deducting everything and tracking your estimated expenses, too.

If you had a major life event, like an interstate move, marriage or divorce, or even grew your family with your first child, having a tax provider can help you make sure you don’t miss out on any deductions or credits.

If you own rental property or have foreign investments, these forms can get tricky when you’re trying to claim losses or just trying to make sure you’re following the rules. Just make sure whomever you go to has a Preparer Tax Identification Number (PTIN).

If your income is below $72,000 you can file for free using the IRS Free File program. That means there’s no fee at all to file your federal tax return.