Gov. Gavin Newsom and state lawmakers have reached a tentative deal to return $9.5 billion in tax refunds to Californians, sending as much as $1,050 to families this fall in long-awaited financial relief from record-high gasoline prices and inflation.
The plan would provide larger refunds to households that earn less money and include an additional payment for dependents, according to documents outlining the proposal.
Although Newsom originally hoped to get money back in people's pockets this summer, discord among Democrats at the state Capitol delayed the timeline for months.
Refunds to offset the highest fuel costs of any state in the nation will likely not start going out until October if approved by the Legislature this week.
The plan to issue refunds is part of a larger state budget agreement the governor and legislators are expected to announce soon on a spending plan for the coming year that includes more funding for K-12 education, covid-19 bonuses for health care workers, money to address drought and wildfire, expanded access to abortion services and other funding priorities of California's Democratic leaders.
Defraying rising gas prices has been at the crux of the debate between Newsom and lawmakers over how to spend the state's surplus tax revenues, last projected to reach $97 billion through next summer. The sides disagreed for months over who should receive refunds and how much they should be entitled to.
Newsom ultimately gave up his effort to tie refunds to vehicle ownership through the Department of Motor Vehicles and agreed with a legislative plan to work with the Franchise Tax Board to send direct deposits and debit cards to taxpayers.
Leaders of the Senate and Assembly compromised on their call to exclude wealthy Californians from being eligible for refunds and settled on an income cap of $250,000 for individual taxpayers and $500,000 for joint filers -- more than double the limit in their original proposal.
The plan would provide refunds on a sliding scale based on three income levels.
An individual who earns up to $75,000 per year would receive a $350 refund, which would double to $700 for joint filers earning as much as $150,000.
Households would receive an additional $350 payment if they claimed any dependents, for a maximum refund of $1,050.
At the next income level, single filers who earn up to $125,000 would get $250 refunds.
Households that file jointly and earn up to $250,000 would receive $500. Children or any other dependents would qualify taxpayers for another $250 payment, making families in the income bracket eligible for as much as $750 total.
Individuals who earn up to $250,000 would receive $200 and joint filers with income as much as $500,000 would receive $400. Households with dependents would receive an extra $200, making this income bracket eligible for a maximum of $600.
The Legislature will vote on refunds and a final state budget plan in a series of bills this week.
Earlier this month lawmakers sent Newsom a preliminary state budget plan totaling more than $300 billion, a framework that included their initial proposal to provide $8 billion in tax refunds.
Lawmakers passed the preliminary budget in order to meet a constitutional deadline of June 15 to avoid forfeiture of their paychecks. But they had not landed a deal with the governor on rebates or the spending plan and expected many details to change in the coming days.
Under the new agreement, money for refunds would increase by $1.5 billion above the Legislature's initial plan.
The efforts to lessen the sting of gasoline prices also lands in the middle of an election year and at a time when inflation and interest rates are on the rise, elevating concerns about a recession.
Californians paid an average of $6.34 for a gallon of regular unleaded gasoline as of Friday, according to the American Automobile Association.
The state average dropped slightly from a record-high earlier this month but remains $1.42 above the national average.