"Also in 2022, some states with budget surpluses have been issuing tax rebates to residents. While there has been some confusion about whether such payments count as taxable income on 2022 federal returns, that is not the case, said Richard Auxier, senior policy associate at the Tax Policy Center. ..."
I tried to find confirmation of this on the IRS website, but without success; I also failed to find anything relevant at the Tax Policy Center. (Possibly I didn't hit on the right search terms.) Can someone point me to the right place on irs.gov?
Please note, we're not talking about a refund on an overpayment of taxes -- I know that would not be taxable income for me because I have taken the standard deduction for the past few years. But the "rebates" are giveaways from states to the public.
In general in this situation, a state tax rebate is not taxable if the amount returned was not deducted on the federal tax return. If it was deducted and then the taxpayer got it back, it is taxed at that time.
California recently issued a "Middle Class Tax Rebate". CA FTB says it will issue 1099-Misc and that it *MAY* be federally taxable.
formatting link
Thoughts ?
Note that this rebate is not a *refund* of a personal overpayment. Nor it is proportional to the state tax paid - in fact, because the rebate amount phases out at higher incomes, it is *inversely* proportional to the state tax paid.
You can f SEC. 9. The Legislature finds and declares that proceeds of taxes included in the calculation of the state appropriations limit under Article XIII B of the California Constitution includes, but is not limited to, certain motor vehicle fuel and diesel fuel taxes, personal income taxes, sales and use taxes, bank and corporation taxes, insurance taxes, alcohol taxes, and certain cigarette taxes. It is the intent of the Legislature that the refunds provided for in this act constitute a refund of these taxes, excluded from appropriations subject to limitation, as defined in subdivision (a) of Section 8 of Article XIII B of the California Constitution.
The CA Legislative Counsel Digest says this about Sec. 9.
(7) The California Constitution generally prohibits the total annual appropriations subject to limitation of the state and each local government from exceeding the appropriations limit of the entity of government for the prior fiscal year, adjusted for the change in the cost of living and the change in population, and prescribes procedures for making adjustments to the appropriations limit. The California Constitution excludes certain specified appropriations as exempt from this total annual limit, including tax refunds. This bill would provide that the appropriations made by the bill are appropriations for purposes of refunding state tax liability incurred by Californians during the 2021–22 fiscal year, are not subject to the annual appropriations limit set by the California Constitution. The bill would make related findings and declarations.
So, it appears that the expenditures by the state for this refund are refunds of certain excise taxes and sales and use taxes. (Another section of the bill states that is not a refund of personal income taxes.) One might conclude that as long as one did not receive any tax benefit by deducting those taxes on the federal return, that the payment is nothing more than a nontaxable rebate or to put another way, a reduction in the price of goods and services purchased.
All of the preceding should not be construed as tax advice.
========================================= MODERATOR'S COMMENT: Personally I think the article you are referring to is poorly reasoned and the legal analysis is poor. That doesn't mean the conclusion is wrong - I didn't research it to find out for myself. I'll leave that to your own conclusions.
BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here.
All logos and trade names are the property of their respective owners.