Tax rebate sent to some Arizona families subject to federal tax: ADOR

Officials with the Arizona Department of Revenue announced on Jan. 16 that those who received the Arizona Families Tax Rebate will need to report the rebate.

"The IRS has determined the Arizona Families Tax Rebate recently sent to eligible taxpayers is subject to federal income tax and is required to be reported as part of the federal adjusted gross income," read a portion of the statement

The same statement said the tax rebate in question is not subject to Arizona income tax, and should be subtracted from the federal adjusted gross income on the 2023 Arizona individual income tax return.

"Affected taxpayers will be sent a statement by mail that they are to check the online portal to access their 1099-MISC, which documents the rebate amount they received. ADOR is required by federal law to issue this form to taxpayers as an informational statement since the income must be reported on the income tax return," read a portion of the statement.

This is not the first time a state tax rebate has been subjected to federal taxes. In December 2023, the Associated Press reported that a $260 tax rebate that was sent out by the Minnesota State Government to their taxpayers will be subjected to $26 in federal income taxes. The state's governor, Tim Walz, said he told White House Chief of Staff Jeff Zients that the state was being treated unfairly because it missed a cutoff by 15 days.

What is the Arizona Families Tax Rebate?

On Oct. 31, 2023, Governor Katie Hobbs announced the tax rebate, which involved a one-time payment of up to $750 for those eligible.

According to ADOR officials, those eligible will get $250 for every claimed dependent who is under the age of 17, and $100 for every claimed dependent over the age of 17, based on their 2021 tax returns.

The payments impact about 750,000 families across the state, and we heard from some of them on their struggles.

"When you have five kids that are growing really fast – despite them being girls, they eat a lot – it's been a huge financial impact on our family," said Tatiana Pena, who is a mother of five.

"The impact of inflation for our family has been absolutely crazy," said Jenny Clark, also a mother of five. "Our expenses every month have gone up. $700 a month, we see it all the time we go to the grocery store."