The saga of California’s inflation refund is coming to a close even as qualified taxpayers wait for their payments.
Gov. Gavin Newsom’s office said last fall that the state would distribute the one-time Middle-Class Tax Refund payments between late October and mid-January. The payments, which range from $200 to $1,050, are aimed at taxpayers who earn less than $500,000.
The good news: The Franchise Tax Board and its $25 million contractor, Money Network, have sent a combined 16,600,982 payments to recipients, either by direct deposit or debit card. While an early estimate from the state indicated the refund would reach 18 million recipients, the FTB now says the actual number is likely lower.
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“It’s difficult to say how many more payments will ultimately be issued upon validation, but it’s clear that the ultimate total will be less than the 18 million originally estimated,” FTB media liaison Andrew LePage told us via email on Wednesday, Jan. 25.
So how many payments are still in the system? A call center employee at Money Network, the company managing the distribution of debit cards, said on Jan. 20 that as many as 1 million payments were still being “sent out” and the company had been given until the end of the month to finish the work.
That number prompted us to email the FTB for confirmation, even as more emails from confused and frazzled readers spilled into our MCTR inbox last week.
We sent a bunch of questions to LePage. His answers have been edited for length.
Q: A Money Network representative told us Friday, Jan. 20 that the company has been given until the end of January to distribute more than 1 million MCTR debit cards. Is this true?
A: It is incorrect that we still have 1 million debit cards to issue or mail. As of mid-January, nearly all debit card payments had been mailed for those tax returns that have been identified as MCTR eligible.
READ MORE: MCTR questions: Can I get a paper check instead of a debit card?
Some of those payments are still in the mail and should be received by or around the end of this month.
We are seeing confusion between the use of the word mailed, distributed and issued and that may be the source of this issue.
Q: How many more payments are still in the pipeline?
A: A relatively small number of payments – those that are exceptions that fall into manual review to ensure eligibility – will be issued through Feb. 14 – the latest date we’ve identified for mailing cards to those who had recent address changes. In other, very unusual cases – again, exceptions in manual review – payments could be issued later than Feb. 14.
Once the cards are mailed, FTB is not able to track when the USPS delivers the card and our data is based on a mail date.
Toward the middle of next month, we hope to have a better idea – at least in a rough sense – of the ultimate total. (Again, a relatively small number of returns are still being processed to ensure eligibility.)
RELATED: How to cash California’s Middle Class Tax Refund debit card
Q: Is there a reason why the distribution didn’t finish by mid-January?
A: FTB has completed distribution of the cards as originally planned through the middle of January. It is also important to understand that the January 14th date was not a deadline. It was an expectation that has now been met. Over the next several months, as we continue handling exceptions or the re-issuance of cards, no deadline exists that would bar us from engaging in this critical work.
Q: Also, are there any more direct deposits heading to bank accounts? If so, how many?
A: Nearly all direct deposits have been issued. It’s possible there will be a relatively small number of additional direct deposits but it’s difficult to quantify given the aforementioned tax returns pending a manual review.
Is this refund taxable?
With tax filing season starting, several people emailed us after receiving an MCTR-related 1099-MISC in the mail. The MISC distinction typically is for “non-employee compensation” or “other income payments.” For the MCTR, these forms are going to those who received more than $600.
Tina, a reader who asked us not to use her last name, told us that while she declined the MCTR debit card and requested a paper check from the FTB, she has yet to get a payment.
“Today we received a 1099 from the FTB for funds we did NOT receive for the tax year 2022,” she wrote. “I was not aware this was going to be taxable income. So we are now being taxed on income we did not receive. I wonder how many other taxpayers are in this same boat?”
LePage noted the MCTR payments will not be taxed by California but they “may be considered federal income.” The FTB is required to issue a 1099-MISC form for the taxable year the MCTR payment was made, he said. (Emphasis, mine.)
“Taxpayers or their tax preparers can refer to IRS Publication 525 (2022), Taxable and Nontaxable Income, to determine when the MCTR payment could be subject to tax in their situation.”
That eye-crossing 43-page document notes: “In most cases, an amount included in your income is taxable unless it is specifically exempted by law. Income that is taxable must be reported on your return and is subject to tax. Income that is nontaxable may have to be shown on your tax return but isn’t taxable.”
The IRS knows California is sending out 1099-MISC to MCTR recipients, but so far, it’s not sure whether the refunds will be taxed.
“I can tell you, we are aware of it. California is not the only state doing this,” IRS spokesman Raphael Tulino told the San Francisco Chronicle.
When determining MCTR terms, California law made it so the refund could not be distinguished as a “refund of an overpayment of income taxes.”
Even TurboTax isn’t sure what to do with the refund, telling the Chronicle, “because the middle-class tax refund is not considered a return of taxes, it would not be taxable.”
So, there is no easy answer yet to whether or not the MCTR refunds will be taxed. Stay tuned!
If you need help
For anyone still struggling to determine their MCTR eligibility or status, be sure to call the Money Network and FTB early in the day and stay in the phone tree until you find a human who can answer your questions.
Here’s one way to check:
- Call 1-800-240-0223
- Press 1 for English (or 2 for Spanish)
- Listen to options
- Press 2 “if you have not received a payment”
- It will ask for the last 6 digits of your Social Security number
- Then it will ask for your ZIP code
- It will then say “you may call us back if you have not received a payment by Jan. 31.” That means, we were told, “you’re still in line – most likely.”
For more questions, try the Money Network at 800-542-9332.
Call the Franchise Tax Board: 1-800-852-5711
The state also has a “help” page on the FTB website where residents can check eligibility and how much they’ll receive.
If all else fails, contact your California representative and have them escalate your case. They surely have good contacts in Sacramento.
Readers, keep me posted on your MCTR progress or lack thereof at sgowen@scng.com
