Two weeks after California began sending income-reporting 1099 forms to recipients, the IRS on Friday said it would not tax the Middle Class Tax Refund (MCTR) inflation relief payment. “In the interest of sound tax administration and other factors, taxpayers in many states will not need to report these payments on their 2022 tax returns,” the IRS said in a statement.
The Orange County Register says California was among 18 states that issued some type of refund to taxpayers in 2022. For those who received an MCTR of $600 or more, a 1099-MISC was issued by the Franchise Tax Board.
That form and its tax implications set off a whirlwind of questions about whether or not the federal government would claim a big bite of disaster relief payments, which amount to $9 billion in California.
The IRS said that after a review, it determined it “would not challenge the taxability of payments related to general welfare and disaster relief.”
The IRS on Friday offered a rare thank you to taxpayers, tax professionals, software companies and state tax administrators for their patience as the IRS and U.S. Treasury Department “worked to resolve this unique and complex situation.”
Because of storms across the state, most California taxpayers got an extension from the IRS to file their federal returns by May 15, instead of mid-April. This extension applies to 2022 individual income tax returns due April 18, as well as 2022 business returns typically due March 15 and April 18. The list of eligible counties is available on the IRS’ disaster relief page.