Arizona Families Receiving Tax Rebates May Be Subject to Federal Tax

Officials from the Arizona Department of Revenue declared on January 16 that individuals who received the Arizona Families Tax Rebate are obligated to report it.

According to the statement, the IRS has mandated that this rebate, sent to eligible taxpayers, is liable to federal income tax and must be disclosed as part of the federal adjusted gross income. 

Arizona Rebate: Federal Deduction Details

The statement clarified that while the tax rebate is not subject to Arizona income tax, it should be deducted from the federal adjusted gross income when filing the 2023 Arizona individual income tax return.

Impacted taxpayers will be sent a mailed statement directing them to review the online portal for accessing their 1099-MISC, which outlines the rebate amount they received. 

ADOR is required by federal law to provide this form to taxpayers as an informational statement since the income must be reported on the income tax return.

This occurrence is not unprecedented, as in December 2023, the Associated Press reported that a $260 tax rebate distributed by the Minnesota State Government to its taxpayers would be subject to $26 in federal income taxes. 

Governor Tim Walz expressed his dissatisfaction, contending that the state was treated unfairly due to missing a cutoff by 15 days, a sentiment he conveyed to White House Chief of Staff Jeff Zients.

Arizona Families Tax Rebate

On October 31, 2023, Governor Katie Hobbs unveiled the tax rebate initiative, entailing a one-time payment of up to $750 for eligible individuals.

As per ADOR officials, eligible recipients will receive $250 for each claimed dependent under the age of 17 and $100 for each claimed dependent aged 17 and older, as determined by their 2021 tax returns.

These payments affect approximately 750,000 families statewide, and we have received feedback from some of them regarding their challenges.