Taxation of California MCTR

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Music Teacher Tim
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Taxation of California MCTR

Post by Music Teacher Tim »

Has anyone seen any guidance yet on the FEDERAL taxability of the California Middle Class Tax Refund. California says it's not taxable by the state, but says you need to check on your own if it's taxable by the IRS. The few things I could find suggest that maybe it's still not resolved. I started entering data into H&R Block software, and in the California state section under income adjustments it has a box to check called MCTR Payment - if you click "learn more" it says "The California Middle Class Tax Refund is a one time payment issued to provide relief to qualified recipients. California lets you subtract these amounts from your California income to the extent you included them in your federal gross income". But I don't even see in the federal section where it would go.
Hyperchicken
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Re: Taxation of California MCTR

Post by Hyperchicken »

Probably going to be taxed just like any other state tax refund - that is, it is only taxable federally if you itemized deductions on your federal return, deducted your withheld state taxes, and benefitted from that deduction.

Waiting to see if a 1099G shows up in MyFTB account. (Or any other 1099 variety?)
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ApeAttack
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Re: Taxation of California MCTR

Post by ApeAttack »

I received the refund in January 2023. If it is taxed federally, would I pay taxes for 2022 or 2023?
Just another lazy index investor.
Hyperchicken
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Re: Taxation of California MCTR

Post by Hyperchicken »

2022, I suppose. Interesting that it's going to be a MISC and not a G.

https://www.ftb.ca.gov/about-ftb/newsro ... nformation
Income tax information

Taxable income
The MCTR payment is not taxable for California state income tax purposes. You do not need to claim the payment as income on your California income tax return. You should seek guidance from the IRS regarding federal taxability.

1099-MISC
The MCTR payments may be considered federal income. As such, 1099-MISC for MCTR payments of $600 or more will be issued. You should consult the IRS or your tax professional regarding the federal tax treatment of these payments.
Topic Author
Music Teacher Tim
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Re: Taxation of California MCTR

Post by Music Teacher Tim »

Yeah, they say it "may be considered" but don't seem to really know. If it turns out to be federally taxable, I would think it would be taxable in the year RECIEVED - isn't that the way income is generally handled?
Weathering
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Re: Taxation of California MCTR

Post by Weathering »

Music Teacher Tim wrote: Sat Jan 14, 2023 7:32 pm Yeah, they say it "may be considered" but don't seem to really know. If it turns out to be federally taxable, I would think it would be taxable in the year RECIEVED - isn't that the way income is generally handled?
I agree with you. But I’ll also say the debit card they sent me this month was funded in Nov 2022 (I could see that when logging in to the card’s account to transfer funds out)
toddthebod
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Re: Taxation of California MCTR

Post by toddthebod »

This is called constructive receipt of income. If someone mails you a check at the end of the year and it gets to your mailbox after the new year, it is technically taxable in the new year.

Unfortunately the payer will send you a 1099 for the previous year, so while you can make adjustments on your taxes to not recognize the income this year and then to include the extra income next year, it is rarely worth the effort for small sums like this.
Backtests without cash flows are meaningless. Returns without dividends are lies.
billy269
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Re: Taxation of California MCTR

Post by billy269 »

Just got my 1099-MISC today. I have no idea whether or not to include it on my federal taxes... No guidance from the IRS.
nalor511
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Re: Taxation of California MCTR

Post by nalor511 »

billy269 wrote: Sat Jan 21, 2023 9:20 pm Just got my 1099-MISC today. I have no idea whether or not to include it on my federal taxes... No guidance from the IRS.
They will probably weigh in at some point. Or not. https://www.sfchronicle.com/california/ ... 625427.php
billy269
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Re: Taxation of California MCTR

Post by billy269 »

nalor511 wrote: Sat Jan 21, 2023 9:59 pm
billy269 wrote: Sat Jan 21, 2023 9:20 pm Just got my 1099-MISC today. I have no idea whether or not to include it on my federal taxes... No guidance from the IRS.
They will probably weigh in at some point. Or not. https://www.sfchronicle.com/california/ ... 625427.php
Yeah, that's the only article I could find on it and it's pretty old. You'd think that since this impacts the most populous state in the union they'd provide guidance...
Hyperchicken
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Re: Taxation of California MCTR

Post by Hyperchicken »

Tax filing opens this coming Monday 1/23. Will be interesting to see how this plays out. Lack of IRS guidance may open the gates for a flood of amended returns.
anthro789
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Re: Taxation of California MCTR

Post by anthro789 »

I got a 1099-MISC. They are issued for a MCTR over $600. I reported it on IRS Schedule 1, line 8z (other income), and on the California CA(540) Adjustments, section B (additional income), line 8z (other income), as per their instructions. (Not taxable for California)

Middle Class Tax Refund – The California Middle Class Tax Refund
is a one-time payment issued to provide relief to qualified recipients.
California excludes this payment from gross income. For more
information, see Schedule CA (540) specific line instructions in Part I,
Section B, line 8z.

Middle Class Tax Refund – California excludes the Middle Class Tax
Refund payment from gross income. If you received the Middle Class Tax
Refund payment and you included this payment as income for federal tax
purposes on line 8z, column A, enter the amount on line 8z, column B.
Last edited by anthro789 on Sun Jan 22, 2023 10:05 am, edited 1 time in total.
freight_train
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Re: Taxation of California MCTR

Post by freight_train »

It isn't taxable for California. It appears to be an open question as to whether it's taxable for Federal. I'm reluctant to report it until I have guidance. See:

viewtopic.php?p=7076014#p7076014
mjg
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Re: Taxation of California MCTR

Post by mjg »

I'd like to both report it as a 1099-MISC and then make an entry on Schedule 1 Line 24z to back out the amount per https://img1.wsimg.com/blobby/go/310b78 ... 4313102340

However, at this time TurboTax isn't cooperating. I can make an entry via the "Forms" mode by using "Override", but then it doesn't sum up this entry, and I can't override the box that does the summation. I'm going to contact TurboTax and request them to provide a means to get a Line 24z entry be made via their worksheet they have for adjustments.
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HueyLD
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Re: Taxation of California MCTR

Post by HueyLD »

billy269 wrote: Sat Jan 21, 2023 9:20 pm Just got my 1099-MISC today. I have no idea whether or not to include it on my federal taxes... No guidance from the IRS.
Which box is the payment reported on 1099-MISC?
nalor511
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Re: Taxation of California MCTR

Post by nalor511 »

mjg wrote: Sun Jan 22, 2023 1:39 pm I'd like to both report it as a 1099-MISC and then make an entry on Schedule 1 Line 24z to back out the amount per https://img1.wsimg.com/blobby/go/310b78 ... 4313102340

However, at this time TurboTax isn't cooperating. I can make an entry via the "Forms" mode by using "Override", but then it doesn't sum up this entry, and I can't override the box that does the summation. I'm going to contact TurboTax and request them to provide a means to get a Line 24z entry be made via their worksheet they have for adjustments.
This pdf is really thorough and a clear argument for why the payment should not be federally taxable - thank you so much for sharing it
mjg
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Re: Taxation of California MCTR

Post by mjg »

HueyLD wrote: Sun Jan 22, 2023 1:52 pm
billy269 wrote: Sat Jan 21, 2023 9:20 pm Just got my 1099-MISC today. I have no idea whether or not to include it on my federal taxes... No guidance from the IRS.
Which box is the payment reported on 1099-MISC?
It's reported as Box 3. Note I posted this writeup https://img1.wsimg.com/blobby/go/310b78 ... 4313102340 as an excellent justification and directions as to how to both report the received 1099-MISC as well as exclude it from being Fed taxable.
Big Dog
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Re: Taxation of California MCTR

Post by Big Dog »

ApeAttack wrote: Sat Jan 14, 2023 7:15 pm I received the refund in January 2023. If it is taxed federally, would I pay taxes for 2022 or 2023?
depends on the date of your 1099. But the answer should be 2023 taxes which is the year in which you received the payment.
Weathering
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Re: Taxation of California MCTR

Post by Weathering »

Big Dog wrote: Sun Jan 22, 2023 3:52 pm
ApeAttack wrote: Sat Jan 14, 2023 7:15 pm I received the refund in January 2023. If it is taxed federally, would I pay taxes for 2022 or 2023?
depends on the date of your 1099. But the answer should be 2023 taxes which is the year in which you received the payment.
Received my debit card in Jan 2023. When logging into the card account to transfer funds to my bank it showed the card account had been funded in Oct 2022. Just received 1099 this week - so it is a 2022 taxable event
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ApeAttack
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Re: Taxation of California MCTR

Post by ApeAttack »

Big Dog wrote: Sun Jan 22, 2023 3:52 pm
ApeAttack wrote: Sat Jan 14, 2023 7:15 pm I received the refund in January 2023. If it is taxed federally, would I pay taxes for 2022 or 2023?
depends on the date of your 1099. But the answer should be 2023 taxes which is the year in which you received the payment.
So, I should expect to receive a 1099 in the near future if I must count the refund on my 2022 taxes?
Just another lazy index investor.
Hyperchicken
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Re: Taxation of California MCTR

Post by Hyperchicken »

Income is taxable regardless of whether you receive a 1099 form for it.

So if you believe MCTR is federally taxable income (which appears to be an open question at this point), you should declare it on your tax return regardless of whether you receive a 1099 form from FTB.
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WoodSpinner
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Re: Taxation of California MCTR

Post by WoodSpinner »

Weathering wrote: Sun Jan 22, 2023 4:28 pm
Big Dog wrote: Sun Jan 22, 2023 3:52 pm
ApeAttack wrote: Sat Jan 14, 2023 7:15 pm I received the refund in January 2023. If it is taxed federally, would I pay taxes for 2022 or 2023?
depends on the date of your 1099. But the answer should be 2023 taxes which is the year in which you received the payment.
Received my debit card in Jan 2023. When logging into the card account to transfer funds to my bank it showed the card account had been funded in Oct 2022. Just received 1099 this week - so it is a 2022 taxable event
I am planning on reporting it in 2023 since that is when I received the card and access to the funds (rule of Constructive Receipt). Unfortunately we received less than $600 so no 1099 will be issued.

Personally, I would report it on 2022 return of an 1099 was issued for 2022 — given the hassle of dealing with the inconsistency.

WoodSpinner
RetiredAL
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Re: Taxation of California MCTR

Post by RetiredAL »

MCTR is a CA tax refund.

My read is that that if you itemized on the Fed 2021 TY, it's reportable income just like any other yearly (offset by a year) state tax refund. If you've took the std deduction for 2021 TY, it's not taxable income.
nalor511
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Re: Taxation of California MCTR

Post by nalor511 »

RetiredAL wrote: Sun Jan 22, 2023 10:10 pm MCTR is a CA tax refund.

My read is that that if you itemized on the Fed 2021 TY, it's reportable income just like any other yearly (offset by a year) state tax refund. If you've took the std deduction for 2021 TY, it's not taxable income.
It is NOT a tax refund.
Big Dog
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Re: Taxation of California MCTR

Post by Big Dog »

nalor511 wrote: Sun Jan 22, 2023 10:12 pm
RetiredAL wrote: Sun Jan 22, 2023 10:10 pm MCTR is a CA tax refund.

My read is that that if you itemized on the Fed 2021 TY, it's reportable income just like any other yearly (offset by a year) state tax refund. If you've took the std deduction for 2021 TY, it's not taxable income.
It is NOT a tax refund.
Correct. It definitely is not a tax refund.
Big Dog
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Re: Taxation of California MCTR

Post by Big Dog »

WoodSpinner wrote: Sun Jan 22, 2023 9:49 pm
Weathering wrote: Sun Jan 22, 2023 4:28 pm
Big Dog wrote: Sun Jan 22, 2023 3:52 pm
ApeAttack wrote: Sat Jan 14, 2023 7:15 pm I received the refund in January 2023. If it is taxed federally, would I pay taxes for 2022 or 2023?
depends on the date of your 1099. But the answer should be 2023 taxes which is the year in which you received the payment.
Received my debit card in Jan 2023. When logging into the card account to transfer funds to my bank it showed the card account had been funded in Oct 2022. Just received 1099 this week - so it is a 2022 taxable event
I am planning on reporting it in 2023 since that is when I received the card and access to the funds (rule of Constructive Receipt). Unfortunately we received less than $600 so no 1099 will be issued.

Personally, I would report it on 2022 return of an 1099 was issued for 2022 — given the hassle of dealing with the inconsistency.

WoodSpinner
I'm with wood spinner. since I just recieved the debit card in the mail yesterday, I should not receive a 1099 until next Jan. But if they do issue me a 1099 for 2022, I'll go ahead and just add it to my 2022 return to avoid the hassle.
RetiredAL
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Re: Taxation of California MCTR

Post by RetiredAL »

nalor511 wrote: Sun Jan 22, 2023 10:12 pm
RetiredAL wrote: Sun Jan 22, 2023 10:10 pm MCTR is a CA tax refund.

My read is that that if you itemized on the Fed 2021 TY, it's reportable income just like any other yearly (offset by a year) state tax refund. If you've took the std deduction for 2021 TY, it's not taxable income.
It is NOT a tax refund.
1) FTB calls it a "refund".

2) Here is my bank's entry: (the yyzz) is to blank out my SS and I replaced my real name)
10/17/22 FTB MCT REFUND MCT REFUND 101222 XXXXXyyzz MyName
Lente
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Re: Taxation of California MCTR

Post by Lente »

Interesting discussion...

Over at TaxProTalk quite a bit of dialog around the law, with the conclusion still open, but with some good arguments for not taxable.

https://www.taxprotalk.com/forums/viewt ... =8&t=27184

May wish to see how this shakes out a bit more before taking a final determination, and see if the IRS decides to issue any guidance.
toddthebod
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Re: Taxation of California MCTR

Post by toddthebod »

RetiredAL wrote: Sun Jan 22, 2023 10:30 pm
nalor511 wrote: Sun Jan 22, 2023 10:12 pm
RetiredAL wrote: Sun Jan 22, 2023 10:10 pm MCTR is a CA tax refund.

My read is that that if you itemized on the Fed 2021 TY, it's reportable income just like any other yearly (offset by a year) state tax refund. If you've took the std deduction for 2021 TY, it's not taxable income.
It is NOT a tax refund.
1) FTB calls it a "refund".

2) Here is my bank's entry: (the yyzz) is to blank out my SS and I replaced my real name)
10/17/22 FTB MCT REFUND MCT REFUND 101222 XXXXXyyzz MyName
Yet actual tax refunds are reported on a 1099-G.
Backtests without cash flows are meaningless. Returns without dividends are lies.
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runner26
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Re: Taxation of California MCTR

Post by runner26 »

The MCTR grew out of a legislative attempt to refund gas taxes, though it seemed to morph. Since I don't deduct gas taxes, wouldn't that preclude being federally taxed on a refund of a portion of those taxes?
toddthebod
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Re: Taxation of California MCTR

Post by toddthebod »

(d) The payment authorized by this section shall not be a refund of an overpayment of income taxes under Chapter 6 (commencing with Section 19301) of Part 10.2 of Division 2 of the Revenue and Taxation Code of any liability imposed under Part 10 (commencing with Section 17001) of Division 2 of the Revenue and Taxation Code.
"Liabilities imposed under Part 10 commencing with 17001 of Division 2" are personal income taxes.
Backtests without cash flows are meaningless. Returns without dividends are lies.
freight_train
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Re: Taxation of California MCTR

Post by freight_train »

nalor511 wrote: Sun Jan 22, 2023 1:54 pm
mjg wrote: Sun Jan 22, 2023 1:39 pm I'd like to both report it as a 1099-MISC and then make an entry on Schedule 1 Line 24z to back out the amount per https://img1.wsimg.com/blobby/go/310b78 ... 4313102340

However, at this time TurboTax isn't cooperating. I can make an entry via the "Forms" mode by using "Override", but then it doesn't sum up this entry, and I can't override the box that does the summation. I'm going to contact TurboTax and request them to provide a means to get a Line 24z entry be made via their worksheet they have for adjustments.
This pdf is really thorough and a clear argument for why the payment should not be federally taxable - thank you so much for sharing it
Agreed. Thank you! I'm going to use this approach if the IRS hasn't said otherwise when I get around to filing.
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HueyLD
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Re: Taxation of California MCTR

Post by HueyLD »

“ In a podcast, Spidell Publishing, LLC, a private California tax analysis and education company that is well-respected in California, stated that the payments are taxable for Federal income tax purposes.

However, subsequently, Spidell acknowledged in its tax update manual that the general welfare exclusion could possibly apply.
At any rate, the opinions of tax professionals (including mine) do not constitute substantial authority that may be relied upon for purposes of the accuracy- related penalty.“

https://img1.wsimg.com/blobby/go/310b78 ... 4313102340
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runner26
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Re: Taxation of California MCTR

Post by runner26 »

mjg wrote: Sun Jan 22, 2023 1:39 pm I'd like to both report it as a 1099-MISC and then make an entry on Schedule 1 Line 24z to back out the amount per https://img1.wsimg.com/blobby/go/310b78 ... 4313102340

However, at this time TurboTax isn't cooperating. I can make an entry via the "Forms" mode by using "Override", but then it doesn't sum up this entry, and I can't override the box that does the summation. I'm going to contact TurboTax and request them to provide a means to get a Line 24z entry be made via their worksheet they have for adjustments.
HR Block doesn't allow entry of Line 24z without override either, negating e-file. Also, to avoid propagating the 1099-MISC to CA state return, I need to create a fake federal without the 1099. This will likely create a non-match issue with the state filing. What a mess! This was not thought out by legislators.
nalor511
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Re: Taxation of California MCTR

Post by nalor511 »

runner26 wrote: Tue Jan 24, 2023 8:59 pm
mjg wrote: Sun Jan 22, 2023 1:39 pm I'd like to both report it as a 1099-MISC and then make an entry on Schedule 1 Line 24z to back out the amount per https://img1.wsimg.com/blobby/go/310b78 ... 4313102340

However, at this time TurboTax isn't cooperating. I can make an entry via the "Forms" mode by using "Override", but then it doesn't sum up this entry, and I can't override the box that does the summation. I'm going to contact TurboTax and request them to provide a means to get a Line 24z entry be made via their worksheet they have for adjustments.
HR Block doesn't allow entry of Line 24z without override either, negating e-file. Also, to avoid propagating the 1099-MISC to CA state return, I need to create a fake federal without the 1099. This will likely create a non-match issue with the state filing. What a mess! This was not thought out by legislators.
Or you could do it the proper way, a subtraction on Schedule CA
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runner26
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Re: Taxation of California MCTR

Post by runner26 »

nalor511 wrote: Tue Jan 24, 2023 10:19 pm
runner26 wrote: Tue Jan 24, 2023 8:59 pm
mjg wrote: Sun Jan 22, 2023 1:39 pm I'd like to both report it as a 1099-MISC and then make an entry on Schedule 1 Line 24z to back out the amount per https://img1.wsimg.com/blobby/go/310b78 ... 4313102340

However, at this time TurboTax isn't cooperating. I can make an entry via the "Forms" mode by using "Override", but then it doesn't sum up this entry, and I can't override the box that does the summation. I'm going to contact TurboTax and request them to provide a means to get a Line 24z entry be made via their worksheet they have for adjustments.
HR Block doesn't allow entry of Line 24z without override either, negating e-file. Also, to avoid propagating the 1099-MISC to CA state return, I need to create a fake federal without the 1099. This will likely create a non-match issue with the state filing. What a mess! This was not thought out by legislators.
Or you could do it the proper way, a subtraction on Schedule CA
Didn't see a way in the block software to do that without override. Though CA state is not yet final.
nalor511
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Re: Taxation of California MCTR

Post by nalor511 »

runner26 wrote: Tue Jan 24, 2023 10:24 pm
nalor511 wrote: Tue Jan 24, 2023 10:19 pm
runner26 wrote: Tue Jan 24, 2023 8:59 pm
mjg wrote: Sun Jan 22, 2023 1:39 pm I'd like to both report it as a 1099-MISC and then make an entry on Schedule 1 Line 24z to back out the amount per https://img1.wsimg.com/blobby/go/310b78 ... 4313102340

However, at this time TurboTax isn't cooperating. I can make an entry via the "Forms" mode by using "Override", but then it doesn't sum up this entry, and I can't override the box that does the summation. I'm going to contact TurboTax and request them to provide a means to get a Line 24z entry be made via their worksheet they have for adjustments.
HR Block doesn't allow entry of Line 24z without override either, negating e-file. Also, to avoid propagating the 1099-MISC to CA state return, I need to create a fake federal without the 1099. This will likely create a non-match issue with the state filing. What a mess! This was not thought out by legislators.
Or you could do it the proper way, a subtraction on Schedule CA
Didn't see a way in the block software to do that without override. Though CA state is not yet final.
I'm sure you're right that it's not final, it's in the adjustments section, or in forms view, state schedule CA
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runner26
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Re: Taxation of California MCTR

Post by runner26 »

nalor511 wrote: Tue Jan 24, 2023 10:25 pm
I'm sure you're right that it's not final, it's in the adjustments section, or in forms view, state schedule CA
Yes found it, with HR Block in form view item 'ae' in the worksheet has an adjustment specifically for Middle Class Tax Refund.
evcsfan
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Re: Taxation of California MCTR

Post by evcsfan »

As per the post at https://ttlc.intuit.com/community/taxe ... e#M1025509, it is likely that TurboTax will not treat it as taxable income at the Federal level. We will have to wait for a software update to confirm this.

Update: TurboTax update on 1/26 reflects the proposed change. It now clearly displays that "California MCTR will not be taxable on your California or Federal returns."
elgob
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Re: Taxation of California MCTR

Post by elgob »

evcsfan wrote: Wed Jan 25, 2023 11:37 pm Update: TurboTax update on 1/26 reflects the proposed change. It now clearly displays that "California MCTR will not be taxable on your California or Federal returns."
Note that TT appears to be implementing that position by excluding the amount from the return altogether, rather than reporting it on Schedule 1 line 8z then backing it out on Schedule 1 line 24z.
muddgirl
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Re: Taxation of California MCTR

Post by muddgirl »

I haven't found a way to make a custom negative adjustment on FreeTaxUSA yet. But it is still early in the tax season.

Free Fillable Forms seems to indicate that is possible in their line by line instructions but I haven't tried it.
Hyperchicken
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Re: Taxation of California MCTR

Post by Hyperchicken »

One thing that I just noticed - MyFTB account now shows this message:
Important: Forms 1099-MISC we issued for 2022 Middle Class Tax Refund (MCTR) payments are not available online.
So I guess they send them by paper mail only. They do normally issue other 1099 forms (such as 1099G) electronically.
evcsfan
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Re: Taxation of California MCTR

Post by evcsfan »

elgob wrote: Thu Jan 26, 2023 10:47 pm Note that TT appears to be implementing that position by excluding the amount from the return altogether, rather than reporting it on Schedule 1 line 8z then backing it out on Schedule 1 line 24z.
TurboTax update on 1/27 now shows a positive and a negative amount on Schedule 1 line 8z resulting in a net $0.
ssel
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Re: Taxation of California MCTR

Post by ssel »

And next to the negative entry they added this text:

"CA payment - general welfare exclusion"
mjg
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Re: Taxation of California MCTR

Post by mjg »

evcsfan wrote: Fri Jan 27, 2023 5:47 am
elgob wrote: Thu Jan 26, 2023 10:47 pm Note that TT appears to be implementing that position by excluding the amount from the return altogether, rather than reporting it on Schedule 1 line 8z then backing it out on Schedule 1 line 24z.
TurboTax update on 1/27 now shows a positive and a negative amount on Schedule 1 line 8z resulting in a net $0.
Yeah! Glad this is fixed.
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