California AB 192 (Chapter 5, 6/30/22) adds a few tax provisions including the Better for Families Tax Refund. This will provide a one-time rebate to most California taxpayers other than those with 2020 Adjusted Gross Income (AGI) above $500,000 and individuals with income so low they were not required to file a 2020 return and did not do so. That is an odd group - highest income and lowest income, to exclude from this rebate which can be as high as $1,050 and as low as $200 depending on 2020 income and whether the taxpayer had a dependent in 2020.
The purpose of the tax refund/credit is to address financial challenges caused by COVID-19, inflation and increasing costs for gas, food and other necessities. (Per Assembly Analysis of 6/26/22.)
The qualifications for the credit: [also see FTB website (FTB calls this a Middle Class Tax Refund*)]
•
Filed
2020 return by 10/15/21
•
Meet
California AGI limits (see tables below)
•
California
resident for six or more months of 2020
•
Not
eligible to be claimed as dependent by someone in 2020
•
Be
California resident when refund is paid
The refunds are to be issued from late October 2022 to mid-January 2023.
|
CA
AGI on 2020 Return |
Refund with Dependent |
Refund w/o Dependent |
|||
|
MFJ |
HH |
MFJ |
HH |
|
|
|
$150,000
or less |
$1050 |
$700 |
$700 |
$350 |
|
|
$150,001
to $250,000 |
$750 |
$500 |
$500 |
$250 |
|
|
$250,000
to $500,000 |
$600 |
$400 |
$400 |
$200 |
|
|
CA
AGI on 2020 Return |
Refund with Dependent |
Refund w/o Dependent |
|
Other individuals |
Other individuals |
|
|
$75,000
or less |
$700 |
$350 |
|
$75,001
to $125,000 |
$500 |
$250 |
|
$125,000
to $250,000 |
$400 |
$200 |
The reason why some low income individuals will not get a refund even though they could benefit from this refundable credit for the reasons given and even more so than people with income high enough to have had a 2020 filing obligation is that the individual had to have filed a 2020 California return by October 15, 2021 (the extended due date). Well, AB 192 was signed on June 30, 2022 so it is too late to file for 2020.
Last year, legislation was enacted to provide Golden State Stimulus payments I and II to low-income individuals. One of the requirements was that the individual have filed a 2020 return by October 15, 2021. But, SB 88 (Chapter 8, 2/23/21) and SB 139 (Chapter 71, 7/12/21) that provided GSS I and II were enacted before that date so people still had time to file a 2020 return even though not otherwise required to file.
Perhaps lawmakers figure all individuals who had no requirement to file for 2020 did so by 10/15/21 to get the GSS I and II so will also get this new Families Tax Refund, but there likely are some individuals who did not do so.
BUT - what is the reason to make someone without a filing obligation file a return? This can be confusing to many individuals because the FTB website on who needs to file states that if your income is below a certain level, you don't have to file. This is a valid message (other than these bills requiring filing to get a special credit for low-income individuals).
The American Rescue Plan Act (PL 117-2, 3/11/21) included the higher fully refundable and advanceable child tax credit, just for 2021. This was available to individuals with children and income below the filing threshold (because fully refundable). The IRS made great efforts to reach these folks to be sure they could get their refundable 2021 CTC.
Yes, that is a lot of work. But wouldn't the following be a better approach for the credit:
Allow those without a filing obligation for 2020 to file an abbreviated tax return for 2020 by October 15, 2022. Or set up a toll-free number to allow individuals to call and provide the verification they need assuming it can be verified via some tax document (such as a 1099-R or Social Security benefits statement or W-2).
What do you think?
*I think the FTB should change the name of its AB 192 website from Middle Class Tax Refund to Better for Families Credit. This credit is available to individuals with AGI up to $500,000 (MFJ). That is less than 2% of individuals and arguably, is not the middle class. An Assembly Analysis of AB 192 of 6/26/22 refers to payments to low-income and middle-income Californians, but that is also a stretch as it makes 98% of individuals fall into low-income or middle-income categories.
What is the income range for middle class? Perhaps it is up to $500,000 for MFJ given the tremendous income gap in the top 1% from $500,000 to $500 million or more.
What do you think about that?
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