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Do You Have to Pay Federal Taxes on Your California Gas Rebate Check?



Millions of California residents received state tax rebates last year ranging in value from $200 to $1,050. (Shutterstock)
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When gas prices were soaring in 2022 and Califorina’s state budget had a ballooning surplus, lawmakers decided to send relief payments to millions of residents to help with rising costs.

In recent months, the money has been flowing: The state has issued more than 7 million direct deposits and 9.4 million debit cards, ranging in value from $200 to $1,050. Some Californians who think they qualify for the payment haven’t received it, and are struggling to get their questions answered.

But the people who have received a Middle Class Tax Refund also have a problem: What to do about taxes?

Tax season is officially upon us, so some people who want their refunds as soon as possible have already started filing their returns. California officials have made it clear that people don’t need to claim the payment as income on their state tax return.

But on the question of federal taxes, Californians had been left in limbo, until late last week.

On Friday, the Internal Revenue Service announced that most relief checks issued by states last year aren’t subject to federal taxes, providing 11th hour guidance as tax returns start to pour in.

The ruling applies to California, where most residents got a “middle class tax refund” in 2022, a payment of up to $1,050 depending on their income, filing status and whether they had children. The state Legislature approved the payments to help offset record high gas prices, which peaked at a high of $6.44 per gallon in June according to AAA.

Other states where relief checks do not have to be reported by taxpayers are California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Maine, New Jersey, New Mexico, New York, Oregon, Pennsylvania and Rhode Island. That also applies to energy relief payments in Alaska that were in addition to the annual Permanent Fund Dividend, the IRS said.

In addition, many taxpayers in Georgia, Massachusetts, South Carolina and Virginia also avoid federal taxes on state payments if they meet certain requirements, the IRS said.

“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,” the agency said Friday evening in a statement.

In addition to the exemption of their relief checks from federal taxes, Californians have more time to file their taxes this year. Both the federal and state have extended the filing deadline for individual returns from April 18 to May 15 for people in areas affected by the winter storms. This includes the counties of Fresno, Madera, Kings, Tulare and Merced.

This story has been updated and includes additional material from the Associated Press.

About the Author

Grace Gedye covers California’s economy for CalMatters. Previously, she was an editor at the Washington Monthly. She is a graduate of Pomona College.

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