Is the California Middle Class Tax Refund Taxable?

The California Middle Class Tax Refund (MCTR) is a one-time payment provided by the state of California to offer financial relief to residents affected by high inflation. The tax rebate program aims to return a portion of the state’s budget surplus to eligible taxpayers.

The payment amount varies from $200 to $1,050 based on income level and household size. Single tax filers making up to $250,000 and joint filers making up to $500,000 qualify. An extra sum is provided for dependents. For example, a single filer with one dependent can receive up to $700.

This article will cover key details on the California MCTR program, including:

  • Exact eligibility criteria like income thresholds, filing deadlines, and residency requirements
  • The multi-tier system that determines precise rebate amounts
  • Explanations of how the payments were distributed – electronically, mailed debit cards, etc.
  • Definitive statements from the IRS and California tax authorities on the non-taxable nature of the refunds
  • Implications for federal and state tax returns – amended filings, lower taxable income, potential refunds
  • Comparisons to similar tax rebate programs instituted in other U.S. states
  • Analysis of the impact on low-income families in California

Backed by facts and data, this article seeks to definitively answer common taxpayer questions around the taxability and reporting requirements of the California Middle Class Tax Refund.

What Is the California Middle Class Tax Refund?

The California Middle Class Tax Refund (MCTR) program was established to offset the high inflation-related prices by offering a one-time tax rebate to eligible taxpayers in California. So, a portion of the budget surplus is returned to qualifying families to ease the pain of inflation.

Who Qualifies for the California Middle Class Tax Refund?

The relief payment is provided based on family size and income. The first round of MCTR payments was issued to eligible taxpayers in October 2022.

Here are the eligibility requirements for the rebate:

  • Should fall into the qualifying income range.
  • Should have filed the taxes by Oct. 15, 2021.
  • Should have been a Californian resident for at least six months in 2020.
  • Should be a Californian resident on the day the payment is made.

Residents of California who did not file the 2020 returns by Oct. 15, 2021, do not qualify for the rebate.

An exception was made only for those who applied for (ITIN) Individual Taxpayer Identification Number, didn’t receive it by Oct. 15, 2021, and filed their tax returns by Feb. 15, 2022.

How Much Is the California Middle Class Tax Refund?

Based on the three-tier system created for MCTR, taxpayers qualify to receive $200, $230, or $350.

For the tax rebate, no application form is required. Payments are sent automatically to qualifying individuals.

The first round of payment was distributed electronically by direct deposits. Those who filed their returns electronically received the 2020 tax rebate by direct deposits.

Others were sent payment on pre-loaded debit cards. The card was sent through mail with the rebate amount loaded onto the card.

The qualifying income and the eligibility amount are displayed in the table below:  

Single Tax FilerTier 1Tier 2Tier 3
Income (up to)$75,000$125,000$250,000
Relief Amount$350$250$200
Joint Tax FilerTier 1Tier 2Tier 3
Income (up to)$150,000$250,000$500,000
Relief Amount$700$500$200

Taxpayers with at least one dependent qualify for an additional payment of the same amount.

So, a single tax filer with one dependent will receive $700 (Tier 1), $500 (Tier 2), or $400 (Tier 3), depending on the qualifying income slab.

Similarly, joint filers with one dependent will receive $1050 (Tier 1), $750 (Tier 2), or $600 (Tier 3).

So, the rebate amount varies from $200 to $1050. Those earning more than $500,000 do not qualify for any rebate.

Is the California Middle Class Tax Refund Considered Income?

According to the IRS, the Middle Class tax refund is not considered a part of your income.

Do You Have to Pay Taxes on the California Middle Class Tax Refund?

The California state income tax website states that the MCTR income won’t be taxable for California state tax purposes.

What Are the Implications of the California Middle Class Tax Refund on Your Federal Taxes?

The 1099 forms were sent initially to those who received more than $600 tax rebate. However, taxpayers were suggested to ignore the federal form and not report the payment as income in the 2022 return.

What Are the Implications of the California Middle Class Tax Refund on Your State Taxes?

The California state income tax does not consider the MCTR payment as taxable income for their tax purposes.

Early tax filers who reported the tax rebate amount as income were suggested to file an amended return.

Such taxpayers may now have a lower-than-usual taxable income or may receive a refund for reporting the MCTR payment as income.

How to Report Your California Middle Class Tax Refund on Your Taxes

For efficient tax administration, the IRS has declared that it won’t challenge the non-reporting of the relief amount.

Because it took a few rounds of negotiations with the government to declare the relief amount as non-taxable, many California taxpayers were already sent the 1099 tax form.

Those who received the 1099-MISC-related tax forms were suggested not to worry about reporting the relief amount in the 2022 tax returns.

However, those who received the 1099 form related to income other than the tax rebate were encouraged to not ignore the tax form.

What Other States Have Similar Programs to The California Middle-Class Tax Rebate?

The rising prices and inflation compelled many other states in the United States to provide inflation relief payments and tax rebates to assist residents with the significant economic challenges.

States like Colorado, Connecticut, Florida, Idaho, Indiana, Illinois, Delaware, New York, New Jersey, New Mexico, Pennsylvania, Oregon, Hawaii, Alaska, and Rhode Island started the Middle Class tax rebate program as a state’s way to assist citizens with the rising costs.

Fortunately, most states do not require residents to take any action to receive the tax rebate. The rebate program is set up to distribute relief payments automatically to qualifying residents.

Moreover, many states now do not consider the distributed payment as a taxable portion of the income. To know whether your state charges taxes on relief payments, visit the state’s official tax website.

How Does the California Middle-Class Tax Rebate Affect Low-Income Families?

The vast majority of Californians have welcomed the government’s tax rebate initiative because it gave them financial hope during the economic crises.

Even though it’s a one-time payment, many families could put fuel in their cars, pay the rent, buy utilities, and take care of other essential expenses.

So, the program lived up to its expectations of easing the financial liability of low-income families.

According to reports, more than 32,00,0000 Californians have benefited from the MCTR payment.

However, the rebate program has been a headache for some low-income families who didn’t receive the distributed money.

With no means to track the payment status online, it was a struggle for them to get any help from the organizations in charge of distributing the money.

That said, there is a dedicated helpline number for MCTR payment-related issues. One can call at 1-800-240-0223, choose the desired call menu option, and get connected with the appropriate department.