One of the questions that keeps coming up about the stimulus package checks, commonly referred to as rebates, is, "Will I owe taxes on my rebate money?"
I am happy to report that the stimulus checks will not count as taxable federal income. The IRS says so in this section (fourth "other" Q&A) of its FAQs page.
So you won't have to worry about reporting your $300 or $600 or $1,200 or more as income on your 2008 Form 1040.
But when it comes to state taxes, the answer is "maybe."
As I've talked about before, both in this Don't Mess With Taxes post and in my other tax blog, Eye on the IRS, state and federal tax laws don't always automatically synch up. In fact, they sometimes are diametrically opposed.
And many states, already facing budget shortfalls, are loathe to let go of any money. That includes the funds they could collect on this federal tax payment.
So far, information on state taxes and the federal rebates is scarce. That's not surprising. The money would be counted on 2008 state tax returns filed next year, and most folks aren't thinking that far ahead.
Plus, what does it really matter? Are you going to turn down the federal rebate because you don't want to pay your state tax collector? Even if we could, which I doubt since most of the money will be sent out automatically in May, few if any of us would.
Who's taxing, who's not: I've done some surfing and so far have found just two mentions of state taxes in regard to the stimulus rebate.
Down in Alabama, it looks like, for at least now, the rebates would be taxed under that state's tax laws. Doing so, according to an editorial in today's Montgomery Advertiser, would generate an additional
So Alabama lawmakers have to decide whether to collect tax on the individual rebate money to help fill an estimated $60 million state treasury gap.
In New York, the news is better.
Gov. Eliot Spitzer announced last week that the federal stimulus rebate payments will not be subject to New York personal income tax.
And taxpayers across the Empire State are now proclaiming, "I love New York's rebate tax policy."
My advice is to check with your state's officials, political as well as tax. As I mentioned earlier, since this is taking place in the 2008 tax year, they might not have yet thought about how they will handle taxing or not taxing the rebates. Or any decision might require some legislative action either way later this year or next year.
If you let me know what you find out about your state's rebate tax plans, I'll share the info here.