IRS announces California's 'Middle Class Tax Refund' will not be subject to federal taxes

SAN FRANCISCO -- California taxpayers got some great news Friday from the Internal Revenue Service. The federal government will not tax those Middle Class Tax Refunds after all.

Californians have been waiting for weeks to find out if the IRS will tax their inflation relief payments. The IRS said no - it qualifies as "relief."

The state issued more than 16 million payments to Californians ranging from $200 for singles up to $1,050 for families.

Millions received 1099 tax forms saying they must report the payments as income, however, the IRS ruled Friday you won't have to pay taxes on that income.

"The IRS just issued just a few minutes ago a notice that taxpayers in California will not need to report the payments on their 2022 tax returns," said Norman Golden, IRS enrolled agent. "My clients and taxpayers in California will be very happy the IRS is not going to tax them on these payments."

The IRS indicated the payments qualified as either disaster relief or for the good of general welfare. For families in a 25% tax bracket who received a $1,050 payment, it saves up to about $250 in taxes.

Note: Enrolled agent Golden says he will still advise clients to report the 1099 on their tax forms, but back out the income using the "general welfare" exclusion. This is to prevent the IRS from coming back to say you didn't report a 1099, since those forms are reported to the IRS.