California’s treatment of the federal rebates
The IRS will begin sending Economic Stimulus Payments (rebates) in May. Eligible taxpayers must file a 2007 federal tax return to receive the rebate. FTB has already received inquiries about how the federal rebates will affect California taxpayers. Here are answers to two frequently asked questions about how California will handle the rebate:
- Will California tax the federal rebate?
No. This question was first answered in 2001, when federal rebates were issued as part of the Economic Growth and Tax Relief Reconciliation Act. As was true in 2001, the 2008 federal rebate is not taxable by California, based on FTB's legal ruling of 2001 combined with the amended Internal Revenue Code.
For more information, see FTB legal ruling 2001-3 and the IRS answers to frequently asked question about the stimulus payments rebate questions.
- If my clients are required to file federal tax returns in order to get the rebate, are they also required to file California tax returns, even if they normally do not?
No. They should only file a 2007 California tax return if either of these conditions applies: