Tax News November 2022

Middle Class Tax Refund Payments

Not taxable for California purposes

The Middle Class Tax Refund (MCTR) is a one-time payment to provide relief to Californians. Eligible taxpayers will automatically receive a payment. Most payments are expected to be issued between October 2022 and January 2023.

To determine eligibility, review Middle Class Tax Refund.

The MCTR payment is not taxable for California state income tax purposes.ⁱ Taxpayers do not need to claim the payment as income on their California income tax return; however, taxpayers should seek guidance from the IRS regarding federal taxability.

Eligible recipients who receive MCTR payments of $600 or more will receive an IRS Form 1099MISC based upon the year they receive their MCTR payment.

For more information, visit Middle Class Tax Refund.

ⁱR&TC 17131.12

1. Gross income does not include any payments received by an individual pursuant to Section 8161 of the Welfare and Institutions Code.
2. This section shall remain in effect only until January 1, 2027, and as of that date is repealed.  

Student Loan Debt Forgiveness

Generally taxable in California 

The President unveiled his Student Loan Debt Relief Plan on August 24, 2022. According to the Whitehouse Fact Sheet, the Department of Education will provide up to $20,000 in debt cancellation to Pell Grant recipients with loans held by the Department of Education, and up to $10,000 in debt cancellation to non-Pell Grant recipients. Borrowers are eligible for this relief if their individual income is less than $125,000 ($250,000 for married couples).

In California, forgiveness of student loan debt is generally taxable unless it meets one of the exclusions in California Revenue and Taxation Code (RTC) Sections 17132.11, 17134, or 17144.6, which includes an exclusion for income-based repayments and loan cancellation under Section 1098e of the federal Education Code.ⁱ

In the current federal student loan debt forgiveness plan, the student loan forgiveness is not occurring under Section 1098e; therefore, the student loan debt forgiveness is taxable in California.

The other possibility to exclude cancellation of indebtedness income on forgiven student loan debts from California taxation, would be through California legislation to exclude the income from California taxable income.

ⁱThe Secretary's Legal Authority for Debt Cancellation (ed.gov)

Senate Bill (SB) 851

Computation of Other State Tax Credit for taxpayers with PTE Elective Tax Credit

The Governor signed SB 851 on September 28, 2022. For taxable years beginning on or after January 1, 2022, and before January 1, 2026, this law alters the calculation of the Other State Tax Credit (OSTC) for taxpayers with the Pass-through Entity Elective Tax Credit (PTE elective tax credit). Under this new law, when computing the OSTC, taxpayers must increase the “net tax payable” by the amount of PTE elective tax credit that reduced "net tax" (as defined by RTC section 17039) before application of the OSTC, in the same taxable year.

FTB updated the Help with PTE Elective Tax Pass-through entity elective tax webpage and will update instructions to the Schedule S to assist taxpayers with OSTC and PTE elective tax credit to accurately calculate the OSTC.

For additional information regarding prior changes to the ordering of PTE elective tax credit and OSTC, see Tax News, June 2022 edition, SB 113 credit ordering rules Tax News.

Capital Account Analysis

Schedules K-1 (565) and (568) reporting

Starting in the 2022 taxable year, and for all subsequent years, eligible business entities that elect to be treated as partnerships filing Form 565 or Form 568 are generally required to report partners’ and members’ capital account information using the “tax basis method” described in IRS Form 1065 instructions, but calculated under California law, on their Schedule K-1 (565) and Schedule K-1 (568).

FTB's Form 565 and 568 instructions will contain methods to compute the beginning tax basis capital account analysis balance for those filing these forms that did not previously calculate their tax basis capital account on Schedule K-1 (565) and Schedule K-1 (568) under California law including methods similar to those the IRS permitted in its 2020 Form 1065 instructions. You can request forms in two ways at:

1. Request draft forms for the 2022 Form 565 and Form 568 instructions,
2. Forms and Publications once posted.

Draft forms should be available upon request by December 15, 2022. Requests can be made prior to this date, and we will provide the form if available, otherwise the request will be held when the draft is released.

For information about the 2021 taxable year, please see FTB Notice 2022-01 and our Capital Account Reporting Tax News Flash issued March 10, 2022.

Indexing

Announcing the 2022 tax tier indexed amounts for California taxes

We update the following annually:

• State income tax brackets
• Filing requirement thresholds 
• Standard deduction
• Certain credits for inflation (based on the California Consumer Price Index (CCPI)

This year the inflation rate, measured by the CCPI for all urban consumers from June 2021 to June 2022, is 8.3%. Last year, California’s inflation rate measured at 4.4%.

Visit our 2022 California Tax Table for more information.

The following are some of the changes:

The complete 2022 tax rates and exemption amounts will be available on FTB’s website in late December.

2022 California tax rate schedules

Use for Single or Married/RDP Filing Separately

If the amount on Form 540, line 19 is:

Use for Married/RDP Filing Jointly or Qualifying Widow(er)

If the amount on Form 540, line 19 is:

Use for Head of Household

If the amount on Form 540, line 19 is:

Taxpayers Leaving California

Taxpayers should be aware of any tax responsibility to California

You may have clients who inquire about their California filing requirements after relocating to another state. In general, nonresidents pay tax on their taxable income from California sources.

Sourced income includes, but is not limited to:

• Services performed in California
• Rent from real property located in California
• Sale or transfer of real California property
• Income from a California business, trade, or profession

We recently updated our website to explain different scenarios of taxpayers leaving California, tax filing requirements, and residency resources. 

Return to In-Person Speaking Events

Education and outreach play an important role in communicating information to taxpayers, tax professionals, and other external stakeholders

We provide presentations to groups of 25 or more including community groups, tax professionals, government, and nonprofit organizations who seek to learn more about California tax issues.

Go to the Education and Outreach webpage to request a speaker, or email EducationandOutreach@ftb.ca.gov and include the following information:

• Name
• Phone number
• Organization
• Event’s organizer, name, date, location and address, time, and speaker’s time
• Requested topic(s)
• Number of attendees
• Materials/biography deadlines
• Special requirements

Our recently updated Tax Professionals and Education and Outreach websites provide further information on speaking events and important tax news.

If you have suggestions to improve these websites, please let us know at taxnews@ftb.ca.gov.

Applying for a Career with the State of California

CalCareers account 

The journey to obtain a job with the State of California begins with creating a CalCareers account. This account assists you to manage your job applications and viewing exam results in one place. Please note, you only need one CalCareers account to apply for all jobs.

Taking an exam 

You can view all open state exams on CalCareers that have a specific deadline. The exam bulletin tells you when the exam you are interested in is available, with the majority of exams being accessible online.

To determine whether you qualify for a specific job type (classification), review the qualifications section, and then take the exam if you meet the minimum qualifications. If you take an exam in person, you will receive your exam results by mail, and if completed online, your results should be available immediately after you finish. Once you pass the exam, you can apply for any job vacancy advertised under that job classification.

Applying for job openings 

You must submit a completed Standard State Application (STD 678) for all job openings. Additional requirements may also be needed and will be specified in the job bulletin. Additional requirements can be a cover letter, supplemental essay, resume, etc.  

Interviewing 

If you are contacted for a hiring interview, it is recommended you prepare by reviewing the duties and responsibilities on the job opportunity notice. At the end of an interview, you will be given a time- frame to receive a response.

Probation period 

All newly appointed state employees complete a 6-month or 12-month probationary period, dependent on the job classification. When you successfully complete your probation, you gain permanent civil service status.  

Legislative Proposal Stakeholder Meeting Announcement

Annual meeting to be held Tuesday, November 15, 2022

The time for FTB’s Legislative Proposal (LP) Stakeholder Meeting is fast approaching. This year the meeting will be held virtually through Microsoft Teams.

LP Stakeholder Meeting

Each year we submit ideas to ease tax administration to our three-member Board for approval. Before we do that, we like to gain feedback on our ideas during our LP Stakeholder Meeting.

During the LP meeting, stakeholders will hear about the Department’s LP and be given the opportunity to provide input or comments.

Date: November 15, 2022

Time: 11:00 AM to 12:00 PM

Get More Information

Instructions for logging into the meetings will be available on FTB Meetings in early November.

In the meantime, if you have questions or would like additional information, please send your inquiries to FTBLegislativeServices@ftb.ca.gov.

Taxpayers’ Bill of Rights Hearing

Annual meeting to be held Thursday, December 8, 2022

Under the Taxpayers’ Bill of Rights, Franchise Tax Board conducts an annual hearing to allow taxpayers and industry representatives to present proposals for changes to existing state franchise and income tax laws. Public proposals generally fall into two categories:

Sourced income includes, but is not limited to:

1. Changes to the tax code
2. Changes to administrative procedures 

This year, the annual hearing will be held in Sacramento on Thursday, December 8, starting at 9 AM as part of the December Franchise Tax Board meeting.

If you are interested in attending, go to Meetings for more information. The agenda will be available as we get closer to the meeting date.

For those wanting to present proposals during this hearing, we request you submit a letter detailing each proposal by Friday, November 18, to FTBAdvocate@ftb.ca.gov.

Please include “TBOR” in the subject line, as this will ensure you are acknowledged during the meeting, and we are fully informed of your proposals to be presented.

Ask the Advocate

Brenda Voet, EA
Taxpayers’ Rights Advocate

Filing season to begin January 17

One of our five values is to Deliver Excellent Products and Services. This value supports our mission to assist taxpayers to file tax returns timely and accurately and pay the correct amount due to fund services important for Californians. To better meet this, we rescheduled our filing season to commence January 17, 2023, after the Martin Luther King Jr. Holiday.  This allows us additional time to update our systems and align closer to the federal tax filing season opening date.

During this time, we will accept:

• Any 2022 tax year return filed, but held to process on January 17, 2023
• Cash any payments
• And process any prior year tax returns filed

Many tax filers will not notice any difference to their filing submissions. However, MyFTB account holders may not view their returns filed or payments made on personal accounts between January 3, 2023, and January 16, 2023, until January 17, 2023, or shortly thereafter. Payments made to business accounts should remain viewable in MyFTB during this time.

In addition, same as last year, CalFile will accept returns starting on January 17, 2023.

As we enter the holidays, we wish you a season of joy, peace, and happiness. 

Tax News Flash Links

Tax News Flashes are real-time FTB news releases which inform taxpayers of the latest breaking tax-related events. These articles are published separately from our monthly Tax News edition..

There were no Tax News Flashes sent for the month of October.

FTB Career Opportunities

We have a wide variety of jobs that offer the growth and challenge you may be looking for

If you are a student, recent graduate, or experienced professional, we encourage you to apply. For more information Careers with the State of California at Franchise Tax Board.

Event Calendar

As part of our education and outreach to the tax professional community, we participate in many different presentations and fairs. We provide a calendar that shows the events we attend, as well as other events happening with us, such as interested party and Board meetings.