SACRAMENTO, Calif. — More than one million taxpayers in California may be owed more money in the way of bigger tax credits, and possibly the Golden State Stimulus, because of some changes that came down after tax filings had already started.
The Franchise Tax Board (FTB) explained the changes in a budget request to lawmakers.
Tax filers affected by American Rescue Plan changes
The first group who could be getting more money back includes people who filed their tax returns before the American Rescue Plan Act was passed. The Rescue Plan included a federal income exclusion of up to $10,200 ($20,400 for Married Filing Joint) of unemployment income received in the 2020 tax year.
President Biden signed the Rescue Plan into law on March 11, 2021, a full month after the IRS started accepting returns. The FTB wrote it has identified almost one million taxpayers in California who filed prior to the change.
In many cases, a change in federal taxes would not impact state taxes, but in this case, excluding some unemployment income results in a lower federal Adjusted Gross Income (AGI). The FTB uses the federal AGI as the starting income when calculating the California Earned Income Tax Credit (CalEITC).
The FTB said over 600,000 taxpayers who claimed the CalEITC also have unemployment income that could now be excluded. The new calculations mean taxpayers in this group may now qualify for a larger CalEITC or Young Child Tax Credit.
The FTB plans to automatically adjust these accounts and issue any additional refunds.
Another 300,000 taxpayers didn’t claim the CalEITC when they filed their taxes, but after excluding unemployment income may now qualify for it.
This could mean a big change in their refund. The CalEITC credit ranges from $243 for single filers up to $3,027 for filers with three qualifying children. Additionally, people qualifying for the CalEITC for the first time may also be eligible for the $600 Golden State Stimulus payment.
The FTB said it will be notifying these taxpayers to claim their refund.
IHSS payments
Another 200,000 taxpayers could be eligible for a bigger refund based on a ruling by the Office of Tax Appeal that affects In-Home Supportive Services (IHSS) income. According to the FTB, that ruling means “that certain IHSS payments can be included as earned income for purposes of determining the CalEITC at the taxpayer’s election.” This is important because one qualification of the CalEITC is earned income.
The FTB said it has identified 100,000 taxpayers who excluded IHSS income from their CalEITC calculations. Another 100,000 taxpayers did not claim the CalEITC on their return but now might qualify based on the decision. The FTB plans to notify taxpayers who are affected by the ruling.
It is not clear how quickly the refunds will go out to people. The FTB asked lawmakers for $2.8 million to help it hire more staff to help people who qualify for a bigger refund based on the ARPA changes or the IHSS income ruling.
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