Remember That California Gas Tax Refund? Now You May Be Taxed on It

Last year, before the 2022 midterm elections, California Governor Gavin Newsom decided that taxpayers should receive a Gas Tax refund payment. In his infinite wisdom, His Hairfulness decided that instead of listening to the demands to suspend the excessive gas taxes in the state to alleviate people’s pain at the pump, he’d give away money that the state really didn’t have in a one-time, temporary measure.

A one-time check that taxpayers didn’t ask for, in an amount and time that did little to alleviate the pain—what could go wrong?

Well, the state Franchise Tax Board won’t require taxes be paid on the amount, but the IRS might not be so accommodating. This may be yet another way that California has found to screw over their middle class; what’s left of it.

From San Diego’s local NBC News:

Also known by the names “Gas Tax Refund” and “Inflation Relief Payment,” the Middle-Class Tax Refund was issued to nearly 12.5 million Californians. Depending on your income and your tax filing status, you could receive anywhere between $200 and $1,050 if you filed a state tax return in 2020 and still live in California.

State officials said last year that they wouldn’t be taxing the payment. NBC 7 asked the IRS if the federal government would be taxing the windfall, but, unfortunately, a decision has yet to be made. Instead, the IRS is urging filers to wait for further clarification.
The IRS is aware of questions involving special tax refunds or payments made by states in 2022; we are working with state tax officials as quickly as possible to provide additional information and clarity for taxpayers. There are a variety of state programs that distributed these payments in 2022, and the rules surrounding them are complex. We expect to provide additional clarity for as many states and taxpayers as possible next week.
For taxpayers uncertain about the taxability of their state payments, the IRS recommends they wait until additional guidance is available or consult with a reputable tax professional. For taxpayers and tax preparers with questions, the best course of action is to wait for additional clarification on state payments rather than calling the IRS. We also do not recommend amending a previously filed 2022 return.

Not that the IRS would answer the phone anyway, so we’ll just wait with bated breath. Should the IRS decide Californians need to be taxed some more, they will issue a 1099-MISC to those whose Gas Tax refund totaled $600 or more.

Can. Not. Wait.

The California Legislature supposedly set aside $17 billion to pay for this stimulus program, yet in early January, Newsom announced that the state was facing a $22.5 billion deficit. And all those wealthy folks who Newsom relies upon for their tax revenue have been fleeing the state along with everyone else, so tax revenues are down. Way down.

This is probably why CaLeg is pushing Assembly Bill 259, which, if passed and signed into law, imposes an annual 1.5 percent tax on those with a worldwide net worth above $1 billion.

Newsom loves to crow about California freedoms and California values; but for the majority of the middle class, these no longer exist.