IRS Won’t Tax California Inflation Relief Checks As Income

California residents who received a Middle Class Tax Refund check from the state, were shocked when they also received 1099 form taxing that relief.

However, after months of speculation, the Internal Revenue Service (IRS) announced on Friday that the Middle Class Tax Refund  given last year to the majority of California residents will not be counted as income on 2022 Federal taxes.

The refund, also known as inflation relief checks, was first proposed in the Spring and Summer of 2022 following both spikes in gasoline prices statewide and a nationwide inflation increasing prices for Californians. While initially designed as a $400 payment to all car owners, the relief eventually changed into a final tier level program that would give between $200 to $1,050 to Californians based on income and filing status. Payments then went out between October of last year and January either in the form of direct deposit or Californian flag-branded debit card.

Since first being released in the fall, a lingering question of if the relief amount will count as income had remained unanswered, with the IRS telling Californians not to file taxes until they decided. On Friday, the IRS decided that all relief payments would not be counted as income on 2022 taxes.

“During a review, the IRS determined it will not challenge the taxability of payments related to general welfare and disaster relief,” said the IRS in a press release on Friday. “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.”

The National Taxpayer Advocate, an independent division within the IRS, had noted last month that the weeks of uncertainty in filing taxes was not acceptable and apologized for not resolving the issue sooner.

“Giving taxpayers a choice between waiting to file their returns and receive their refunds or filing returns now that the IRS may later determine to be inaccurate is not acceptable,” said the National Taxpayer Advocate. “This was a known issue, with ramifications for tens of millions of taxpayers, tax return preparers (who still prepare most federal income tax returns) and tax software developers. The failure to have identified and resolved this issue before the filing season suggests that someone, or everyone, was asleep at the switch.”

In addition to Federal tax extension given to residents of the majority of Californian counties due to the the disastrous floods last month, Californians have been all but assured of a later than usual tax filing date this year. Tax experts told the Globe on Friday that this would lead to refunds coming in later, as well as California getting state taxes later due to most people filing both federal and state at the same time.

“Taxes this year have been a long strong of delays and waits,” explained accountant and tax filing professional Curt Atwood to the Globe on Friday. “There’s never a usual tax year, as every year brings new changes, but with the storms and not knowing if this will count as income has really messed with the scheduling. A lot of tax professionals have been awaiting this for awhile now, because we need an accurate amount. Even if you just use TurboTax and do it all online, you still needed to wait on this.”

Tax filings are now expected to start to come in from Californians, with federal due dates coming on April 18th and May 15th dependent on County