IRS Controversy: Taxation on Arizona Families Eligible for Rebate Raises Concerns

Over half a million Arizona families who received a child tax refund last year have suffered a setback at the hands of the IRS, in an unexpected event. 

Initially designed to provide relief from rising inflation, the $250 per child tax credit, with a maximum rebate of $750 for families with up to three kids, is now subject to federal income taxes, leaving many Arizonans with less money in their pockets.

Arizona Governor Katie Hobbs signed the tax rebate into law in May 2023, aiming to alleviate financial strain caused by increasing inflation. 

However, a recent IRS decision has imposed federal income taxes on this rebate, sparking bipartisan disapproval among Arizona lawmakers. 

Senate President Warren Petersen, a Republican, expressed disbelief at the federal government taxing a tax rebate and questioned the rationale behind singling out Arizona for this treatment.

More than a dozen other states have similar tax rebate legislation, and Petersen pointed out that these states did not face federal taxation on their rebates. The move has raised concerns and prompted a call to action from both sides of the political spectrum in Arizona.

Taxpayers who received the rebate last year through direct deposit must now navigate additional complexities. 

IRS 1099-MISC Form Delay

A Department of Revenue spokesperson confirmed that individuals are required to fill out a 1099 miscellaneous form, which is not expected to be available until the end of the month. This added step introduces a potential hassle for taxpayers during the filing process, according to Petersen.

In response to the IRS decision, Attorney General Kris Mayes, a Democrat, is actively investigating the matter. The goal is to explore options to ensure that these dollars remain in the pockets of Arizona taxpayers, as stated by a spokesperson for Mayes.

Governor Hobbs, deeply concerned by the IRS stance, is collaborating with the Department of Revenue to examine potential solutions and safeguard the inflation relief program initiated by the tax rebate law. 

The Department of Revenue encourages taxpayers to check their bank statements for the correct amount, and a notice will be sent when the 1099-MISC form becomes available. 

Those unable to download the form can request a copy by calling 602-716-6855. As Arizona families grapple with these unexpected tax implications, the fight against the IRS decision continues on both state and federal fronts.