Beagle wrote:It's a stimulus payment so it is taxable.
No, it's not taxable.
We are trying to determine a viable tax return position here. To do so, we can’t rely on Spidell, which is a private company offering only an opinion. We must rely on the law.
The law (AB 192) says that the payment isn’t a tax refund. See #12 above. Also, see sec. 8161(d) of the CA Welfare and Institutions Code, which the law added:
(d) The payment authorized by this section shall not be a refund of an overpayment of income taxes …
The law also says that for CA purposes, the payment is specifically excluded from gross income. See sec. 17131.12(a) of the CA Revenue & Taxation Code, which the law also added:
(a) Gross income does not include any payments received by an individual pursuant to Section 8161 of the Welfare and Institutions Code.
The law also says that the purpose of the payment is to provide financial relief for Californians who may have been adversely impacted by the increase in the cost of gas, goods, by supply chain disruptions the COVID-19 pandemic and other economic pressures. See sec. 10 of AB 192:
SEC. 10. Increased costs for goods, including gas, due to inflation, supply chain disruptions, the effects of the COVID-19 emergency, and other economic pressures have had a significant negative impact on the financial health of many Californians. The Legislature hereby finds and declares that the payments authorized by Chapter 4.9 (commencing with Section 8160) of Division 8 of the Welfare and Institutions Code, as added by this act, serve the public purpose of providing financial relief for Californians who may have been adversely impacted by these economic disruptions and do not constitute gifts of public funds within the meaning of Section 6 of Article XVI of the California Constitution.
In Notice 2002-76, the IRS says that such payments are excluded from gross income under the general welfare exclusion:
Governmental payments to help individuals and families meet disaster-related expenses are based on need. For example, Rev. Rul. 76-144, 1976-1 C.B. 17, holds that grants made under the Disaster Relief Act of 1974 to help individuals or families affected by a disaster meet extraordinary disaster-related necessary expenses or serious needs in the categories of medical, dental, housing, personal property, transportation, or funeral expenses (and not in the categories of nonessential, decorative, or luxury items) are excluded from gross income under the general welfare exclusion. In this context, because “need” is not defined in terms of financial need, the general welfare exclusion applies equally to all residents of an affected area regardless of their income levels. In the absence of a disaster, however, governmental payments made without regard to financial status, health, educational background, or employment status are not based on need and, thus, do not qualify under the general welfare exclusion. See Rev. Rul. 76-131, 1976-1 C.B. 16; and Rev. Rul. 85-39, 1985-1 C.B. 21.
https://www.irs.gov/pub/irs-drop/n-02-76.pdfGiven all of this, IMO, the only possible way you could conclude that the payments are taxable is to ignore the law.