Statement on IRS MCTR Guidance

Rocklin, CA (2/10/2023) – ““I am glad the IRS finally responded to my request for guidance by declaring that the Middle Class Tax Refund (MCTR) payments are not taxable, overruling the State of California’s erroneous instructions. The State owes taxpayers an apology. The inexplicable decision to issue 1099s caused some taxpayers to overpay and millions of others to delay filing their returns while the IRS sorted out the mess, in some cases having to wait for much needed refunds. It should also be noted that if the point of the MCTR payments was to provide relief from high gas prices, there was a much simpler and more effective solution: passing my legislation to suspend the gas tax.” – Congressman Kevin Kiley

Background: Following numerous constituents reaching out, Rep. Kiley sent a letter to IRS Commissioner Doug O’Donnell requesting immediate clarification as to whether the MCTR was considered taxable income by the federal government. After the IRS responded by asking 16 million Californians to wait to file their returns until the IRS released guidance, Rep. Kiley sent a follow up letter to Commissioner O’Donnell demanding immediate clarification because many Californians can’t afford to wait in perpetuity to receive their tax refunds. Following this second letter, the IRS finally issued guidance that the MCTR payments are not considered taxable despite 1099’s previously being sent to Californians.

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For California residents currently filing tax returns, the IRS has issued official guidance that the MCTR payments are not taxable for federal income tax purposes. You can read that guidance here. The California Franchise Tax Board has also issued official guidance that the MCTR payments are not taxable state income tax purposes. You can read that guidance here.