When gas prices were soaring in 2022, and California’s state budget had a ballooning surplus, lawmakers decided to send relief payments to millions of residents to help with rising costs. In the past few months, the state has distributed more than 7 million direct deposits and 9.4 million debit cards ranging from $200 to $1,050 as part of the state’s Middle Class Tax Refund. The payments, a one-time measure intended to help offset high gas and cost of living prices, were sent out by direct deposit or debit card. You can find more information on how to activate your card on the FTB’s Middle Class Tax Refund page.
Now, some people are learning that they may have to pay income taxes on those handouts from the Golden State. The Franchise Tax Board has been sending out federal 1099 tax forms to recipients, and the IRS says these inflation relief payments are taxable.
But some tax experts say that’s wrong. The feds don’t tax these payments if they’re considered “general welfare or disaster relief.”California’s Middle Class Tax Refund saga has had plenty of twists and turns. Millions of Californians received their payments, up to $350 per person, beginning in October. But the payments weren’t without snags: many people were confused by the letters they received from a New York bank, and hackers started draining money off of millions of debit cards. 7 On Your Side tried to parse through the jumble of information to determine what this means for you.
Middle Class Tax Refund Card Scams
According to the Franchise Tax Board, some people who got their money on a debit card have encountered problems when trying to withdraw funds or transfer them to their accounts. Some have reported that their cards were depleted by thieves, while others say they couldn’t reach the company that issued the card to complain. Others have reported long wait times when trying to call customer support. The good news is that it appears the majority of these issues have been resolved. In addition, the IRS recently issued guidance indicating that the MCTR payment amounts are not considered to be taxable income for 2022 tax returns. See Related Links below for more information.
Scammers are indeed taking advantage of the state’s program, draining millions of dollars from the cards and making people desperate for their money. 7 On Your Side has been contacted by Californians telling us that their inflation relief cards were drained, many of them before they even had a chance to use them. Others are being charged for items they didn’t order. They say they can’t get through to a real person on the Money Network call lines to dispute unauthorized charges.