The organization had previously stated that it was drafting guidelines for the 19 states that would offer refunds of some kind in 2022.

The IRS advised last Friday that taxpayers in California who received a Middle-Class Tax Refund and an associated 1099 form should postpone filing their federal tax returns.

The IRS said in a statement on February 3 that it is developing instructions for tax preparers and at-home filers as the filing season for returns is now two weeks old.

The question for tax filers who received the 1099-MISC form is whether the IRS will tax the inflation refund.

The statement said that the IRS was aware of inquiries relating to special tax refunds or payments made by states in 2022; they are working with state tax officials as quickly as possible to provide additional information and clarity for taxpayers.

The organization had previously stated that it was drafting guidelines for the 19 states that would offer refunds of some kind in 2022.

For as many taxpayers and states as possible, the IRS said it anticipates providing “additional clarity next week.”

According to the Franchise Tax Board, 6.4 million 1099-MISC forms have been sent out by California to MCTR recipients who received at least $600. For joint filers earning less than $250,000 and having a qualifying dependent, the payments are capped at $1,050. The tax board issued 16.6 million payments totaling $9 billion between October and January.

Some MCTR tax filers discovered during the first week of tax season that TurboTax was preventing them from submitting their tax returns. Bill, a reader who wrote in to express his frustration, attempted to submit his federal tax return but received a “rejected” message from the system.

Days later, the system was updated, and Bill reported that he was able to file his tax return, at which point he was taxed $160 on his $700 MCTR payment. He mentioned that his son, who uses TurboTax as well, was not taxed.

For the time being, the IRS advises taxpayers to avoid pressing the submit button.

The IRS stated that any taxpayers that were unsure about their state tax payments should wait until additional guidance was available or consult with a reputable tax professional. 

And what if you’ve already filed your 2022 tax return? The IRS also advises against amending a previously filed 2022 return.

The Office of Governmental Liaison at the IRS had been contacted by the Franchise Tax Board regarding federal tax guidance for the MCTR, the Franchise Tax Board informed us on Tuesday, January 31.

The IRS responded by advising taxpayers to consult “Publication 525 regarding the taxability of the MCTR payment,” according to Andrew LePage, the FTB’s media liaison.

Several people would argue that the MCTR was intended to be a disaster relief payment, and Publication 525 provides some hints that it would be.

Assembly Bill 192, also known as the Better for Families Tax Refund, was drafted by the legislature and Gov. Gavin Newsom for implementation in the summer of 2022. Taxpayers who were paying record-high prices for basic necessities like gasoline, food, and utilities would benefit from a $9 billion return from the state budget surplus.

Taxpayers may exclude from income any sum received that qualifies as a disaster relief payment, according to Publication 25’s definition of “disaster relief payments.” A qualified disaster relief payment is a sum of money made (Item 4) in connection with a qualified disaster by a federal, state, or local government, agency, or instrumentality in an effort to advance the welfare of the public.

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