IRS says California middle class tax refunds not subject to federal income tax

The Internal Revenue Service announced Friday afternoon that California’s Middle Class Tax Refund will not be subject to federal income tax.

The agency said it will “not challenge” the refund because it is considered disaster relief related to the COVID-19 pandemic. Since the pandemic emergency declaration is set to end in May, the state-issued relief would only be a concern for the 2022 tax year, the IRS said.

The news comes after U.S. Rep. Kevin Kiley put pressure on IRS Commissioner Doug O’Donnell with two public letters saying Californians needed guidance on how to move forward with their taxes.

The IRS issued similar guidance to 16 other states.

“A variety of state programs distributed these payments in 2022 and the rules surrounding their treatment for federal income tax purposes are complex,” the IRS said in a statement. “While in general payments made by states are includable in income for federal tax purposes, there are exceptions that would apply to many of the payments made by states in 2022.”

Below is a list of states where the IRS will not tax pandemic relief:

• California
• Alaska
• Colorado
• Connecticut
• Delaware
• Florida
• Hawaii
• Idaho
• Illinois
• Indiana
• Maine
• New Jersey
• New Mexico
• New York
• Oregon
• Pennsylvania
• Rhode Island

This story was originally published February 10, 2023 at 6:14 PM with the headline "IRS says California middle class tax refunds not subject to federal income tax."