Free money is coming to Californians to offset high gas prices. Will it also come with a tax bill?

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To help ease the pain of high gasoline prices, eligible Californians will start receiving tax refunds of $200 to $1,050 Friday under a budget deal approved by the Legislature and signed by Gov. Gavin Newsom in June.

Which led many people to wonder: Am I going to have to pay taxes on that? Because nothing spoils a windfall in October like a higher tax bill in April.

The answer, as it usually is with tax questions, is: It’s complicated.

The stated purpose of the $9-billion “Middle Class Tax Refund” is to offset high gasoline prices, although under the deal the money will go to people who meet the income limits regardless of whether they drive a gas-powered car. To qualify, you must have lived in California for at least six months in 2020 and filed a state tax return that year, and you must be a California resident on the day the rebate is paid.

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