While the debate over whether we’re already in a recession, headed for a recession, or struggling through “post-pandemic” fallout rages on, certain facts are undeniable:

• The average price of goods and services has risen sharply over the last six months, and this upward trend continues.
• Gas prices have increased by $3 since the beginning of 2022 and are hovering at just over $6 per gallon throughout most of California.
• Mortgage rates have risen sharply over the last three months, reaching a 20-year high, and will likely cool the housing market.
• Many goods, especially cars, are still in short supply while demand remains high, further contributing to ongoing price inflation.
• Unemployment is historically low, but under-employment is rampant, and wages are still failing to keep pace with the surging cost of living.

Collectively, these developments are financial albatross for many California families, especially those in middle and lower-income strata.

Having taken notice of these difficult circumstances, the state legislature and Governor Newsom signed a new budget to ease Californian’s financial burden into law.

Here’s a brief rundown of what this newly unveiled budget means for most California taxpayers:

New CA Budget Overview

In total, the budget encompasses a $300 spending plan. $9.5 billion of which is slated for tax refunds, as part of $12 billion specifically targeting “financial relief” for California state residents.

Here’s what Governor Newsom, Senate President Pro Tem Toni Atkins, and Assembly Speaker Anthony Rendon said about the new budget in a recent joint statement: “California’s budget addresses the state’s most pressing needs and prioritizes getting dollars back into the pockets of millions of Californians who are grappling with global inflation and rising prices of everything from gas to groceries.”

A Potential “Rebate” Check for Qualifying Taxpayers

The latest legislative brief states an estimated 23 million California taxpayers could receive up $1,050 in rebate payments.

Under this three-tiered rebate program, known Middle-Classle Class Tax Refund, individuals making up to $250,000 annually and joint filers making up to $500,000 could qualify for a rebate.

To qualify, you must:

• Have filed your 2020 tax return by October 15, 2021
• Meet the California adjusted gross income (CA AGI) amount described in the What you may receive section
• Have been a California resident for six months or more of the 2020 tax year
• Have not been eligible to be claimed as a dependent in the 2020 tax year
• Be a California resident on the date this payment is issued

How Does The Three-Tier Program Breakdown?

Households earning up to $75,000 for individuals or $150,000 for joint filers will receive $350 per taxpayer. Plus an additional $350 for one or more dependents.

Thus, a single parent will receive $700. And a two-parent family will receive $1,050.

The rebate drops to $250 per taxpayer for households earning up to $125,000 for individuals or $250,000 for joint filers. Plus $250 for one or more dependents.

And drops again to $200 per taxpayer for households earning up to $250,000 for individuals or $500,000 for joint filers. Plus $200 for one or more dependents.

When Can Payments Be Expected?

According to the state government, payments will be mailed or direct deposited between early October 2022 and mid-January 2023.

What Can You Expect If You Qualify?

Qualifying taxpayers will receive either a direct deposit payment or a payment by debit card. Those who filed their taxes electronically and indicated a refined will receive payment via direct deposit. All others will receive payment in the form of a debit card.

How Much Will You Receive?

Here’s a link to a table that will help you calculate your potential refund…

For your CA AGI, refer to:
Line 17 on your 2020 Form 540
Line 16 on your 2020 Form 540 2EZ

Are Rebate Payments Taxable?

Because the rebate payments are considered a “tax refund,” the payments are not added to your taxable income.

What Additional “Relief” Measures Are Included in California’s New Budget?

• $1.95 Billion for Emergency Rental Assistance — Additional funding for qualified low-income tenants (who requested rental assistance before March 31).
• $1.4 Billion to Help Californians Pay Past-Due Utility Bills — Funding to continue paying past-due electricity and water bills.
• $439 Million to Pause the State Sales Tax on Diesel for 12 Months — Pausing the General Fund (3.9375 percent rate) sales tax on diesel fuel.
• Paycheck Protection Program (PPP) Loan Tax Rules Extended — California tax relief is extended to PPP loans issued after March 2021 (California had previously only provided state tax relief for PPP loans issued before March 2021).
• One-time Penalty Abatement for Failure-to-file or Failure-to-pay Taxes in a Timely Manner — Beginning after Jan. 1, 2022, individual taxpayers that have not previously been granted abatement, have filed all required returns, and have paid or made arrangements to pay all outstanding tax liabilities are granted a one-time penalty abatement.
• Extends the Main Street Small Business Tax Credit — The credit can be claimed on an amended return for 2020 and 2021 and extends the credit until Dec. 1, 2026.
• Expands eligibility for the Homelessness Hiring Tax Credit — Employers may be eligible to receive $2,500 to $10,000 in tax credit per eligible employee.
• Extends the California Competes Tax Credit — The program, which offers significant financial incentives to businesses that want to relocate to California or remain in the state and expand their operations, is extended by five years, running through the 2027–28 fiscal year.

Tax Planning For the 2022 Fiscal Year

Have you given any thought to the tax implications of your 2022 income and investment earnings? Now is a great time to start tax planning for the current fiscal year. If you’re interested, get in touch for a FREE consultation!