State Tax Problems

IRS Won’t Tax CA Middle-Class Tax Refund - But What If You Already Filed?

IRS Won’t Tax CA Middle-Class Tax Refund - But What If You Already Filed?

Earlier this month, there was confusion regarding whether the Internal Revenue Service (IRS) would tax state-issued inflation relief checks that were issued in at least 20 states, including California.

This week, the agency confirmed that these payments will not be taxed at the federal level, with specific caveats applying in certain states like Alaska and Virginia. California’s middle-class tax refund is completely exempt from IRS taxes, and does not have to be reported by taxpayers.

Credit: Zach Gibson/Getty Images

When the problem first arose, the IRS issued an official statement regarding the matter. It said, in part, that authorities were “aware of questions involving special tax refunds or payments made by states in 2022; we are working with state tax officials as quickly as possible to provide additional information and clarity for taxpayers.”

Upon resolving the situation, an IRS spokesperson shared, “The IRS determined it will not challenge the taxability of payments related to general welfare and disaster relief.” 

Additionally, the agency confirmed that residents of California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Maine, New Jersey, New Mexico, New York, Oregon, Pennsylvania and Rhode Island “do not need to report these state payments on their 2022 tax return.”

Credit: G. Chutka/Getty Images

This news has led to concern among some Californians who have already submitted their tax returns for the 2022 tax year.

What happens if you already reported the money you received from your midde-class tax refund as taxable income?

Fortunately, there is a simple solution.

California Franchise Tax Board spokesman Andrew LePage shared that the best option for taxpayers in California – and in any state where refunds were issued – is to file a superseding or amended federal income tax return.

Superseding returns are filed before the April tax deadline, while amended returns are filed afterward.

In a statement, the IRS expressed gratitude to taxpayers for their patience, writing, “The IRS appreciates the patience of taxpayers, tax professionals, software companies and state tax administrators as the IRS and Treasury worked to resolve this unique and complex situation.”

If you have questions about how to handle your federal or state tax return, reach out to a reputable tax professional in your area.

Did you already report your middle-class tax refund to the IRS?

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