The state of California will soon be issuing $600 stimulus payments to an estimated 5.7 million residents. These payments will go to:
- Households receiving the California Earned Income Tax Credit for 2020 (typically making $30,000 or less)
- Taxpayers with Individual Tax Identification Numbers (ITINs) who didn’t receive federal stimulus checks
- Households with Individual Tax Identification Numbers and income below $75,000
ITIN taxpayers who also qualify for the California Earned Income Tax Credit will receive a total of $1,200.
The payments will be going out after taxpayers file their 2020 tax returns. One client asked me, “Is that payment going to be taxable income on my federal tax return?” The answer is clearly yes.
Any accession to wealth is taxable unless exempted by Congress. State grants are taxable income. That $600 payments will be taxable income on taxpayers’ 2021 federal tax returns, and impacted taxpayers should receive Form 1099-MISC forms from the state of California. However, these payments will not be taxable income on taxpayers’ California tax returns–California has said these are nontaxable grants, and a state has the right to exclude that income from its taxation system.