California middle class refund

[grandmabee]

CA client receives a 1099 Misc other income of 700.  This is that extra CA refund.

Is this the refunds the IRS just stated not taxable?  So do I put it in and take it back out to cover the matching problem?  TIA

[grandmabee]

So I this falls under the ruling as of late Friday.  Non Taxable.  But I am going to put the 1099 Misc. on return and then take off for matching problems down the road.

 

[Donnarae]

So, it’s not taxable to fed or state? 
I have 2 in my office coming up. Can you post a link? 
gaaaaah

[Lion EA]

See IRS Newswire IR-2023-23 of February 10, 2023.

[jklcpa]

12 hours ago, Donnarae said:

So, it’s not taxable to fed or state? 
I have 2 in my office coming up. Can you post a link? 
gaaaaah

https://www.irs.gov/newsroom/irs-issues-guidance-on-state-tax-payments-to-help-taxpayers

[jklcpa]

18 hours ago, grandmabee said:

So I this falls under the ruling as of late Friday.  Non Taxable.  But I am going to put the 1099 Misc. on return and then take off for matching problems down the road.

 

Yes, I would do that to avoid the matching problem since the state issued a 1099-misc instead of a 1099-G.

[beckster2010]

https://www.ftb.ca.gov/about-ftb/newsroom/middle-class-tax-refund/help.html

Scroll down the page for info regarding State taxability

 

[Terry D EA]

Just curious, and I do have a couple of state returns for more than one state coming up. Are you taking the amount of the 1099 MISC as a negative on other income on the 1040?

[beckster2010]

Per the following IRS guidelines, I will not be including the 1099-MISC in the tax return:

"During a review, the IRS determined it will not challenge the taxability of payments related to general welfare and disaster relief. This means that people in the following states do not need to report these state payments on their 2022 tax return: California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Maine, New Jersey, New Mexico, New York, Oregon, Pennsylvania and Rhode Island. Alaska is in this group as well, but please see below for more nuanced information."

[Sara EA]

Only taxpayers in GA, MA, SC, and VA have to report their payments as income if they itemized in 2021.  All other are home free.  The 1099MISC presents a matching problem though.  I'd put it in and then back out all but a dollar with the explanation.  If you back out the entire amount, the statement will not be sent with the efile.

[Terry D EA]

When I read the IRS ruling, GA, MA, SC and VA are not included in taxable income. The language states unless people in those states received a benefit from the rebate. How could anyone receive a benefit from something they had no previous idea they were getting? No one could report an itemized deduction in 2021 for any amount they received in 2022. For me to include in taxable income an amount as such just because the person itemized deductions is unconscionable. I agree to avoid a matching issue to enter the 1099 and then back it out. I believe ignoring it has the potential to raise some unnecessary questions. 

[Terry D EA]

A blurb from the IRS notice issued on Friday 2/10. I am still of the opinion the red statement is useless based on what I said above. 

 

'In addition, many people in Georgia, Massachusetts, South Carolina and Virginia also will not include state payments in income for federal tax purposes if they meet certain requirements. For these individuals, state payments will not be included for federal tax purposes if the payment is a refund of state taxes paid and either the recipient claimed the standard deduction or itemized their deductions but did not receive a tax benefit."

[Gail in Virginia]

I disagree, Terry, at least with respect to Virginia.  In Virginia you could only get the rebate if you had 2021 taxes paid to Virginia.  So basically, the state just increased everyone's refund of taxes paid by a flat amount.  No different from any other state income tax refund except in how it was calculated, so why should it be treated any differently than a normal tax refund?  And that is what that language does.  Unless you itemized your deductions and received a tax benefit by reporting the amount that you paid in 2021 for Virginia income taxes as a deduction, there is no income to report on the refund received in 2022.  If you did receive a tax benefit, then the refund you received  of taxes that were deducted in 2021 and refunded in 2022 is reported on your 2022 tax return.  Unlike most tax pronouncements, I find this one very logical.

[Lee B]

While the IRS pronouncement may make practical sense, it's logical basis under tax law is questionable.

[Medlin Software, Dennis]

1 hour ago, cbslee said:

While the IRS pronouncement may make practical sense, it's logical basis under tax law is questionable.

IRS and logical in the same sentence...  Not good to see/read while eating!

Feb 14, and I am still dealing with folks who do not understand that 0 withholding can be proper, than there was a HUGE adjustment to the withholding brackets for 2023, and the prior W4 "change" is still biting many employees.