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Taxes on your rebate money?

Thursday, Feb. 28
Posted 8 a.m. EDT

Taxes on your rebate money?

It's a good thing that the stimulus package checks, commonly referred to as rebates, aren't going out until May. It's going to take that long for the IRS and taxpayers to sort through all the issues.

Right after the stimulus package became law, we published some rebate FAQs. But we're still getting lots of questions. So for the next couple of blog postings, I'll answer some of the more common inquiries.

Let's start with a big one: Will I owe taxes on my rebate money?

First, let me say it's great to see that Bankrate readers are so tax-savvy and realize that Uncle Sam usually wants a cut of most of the money we get.

In this instance, though, I am happy to report that the stimulus checks will not count as taxable federal income, so you won't have to worry about reporting your $300 or $600 or $1,200 or more as income on your 2008 return.

But it could be a very different answer when it comes to state taxes.

As I talked about in a previous post , state and federal tax laws don't always automatically align. Sometimes they are polar opposites, with many states already facing budget crunches holding on tight to any tax revenue they can collect.

And that could include state taxes on this federal tax rebate.

So far, information is scarce. My online search has turned up just two mentions of state taxes in regard to the stimulus package.

Alabama tax law, according to an editorial in the Montgomery Advertiser, does call for taxing the federal rebate money. That would generate an additional $55 million for the state.

New York residents get better tax news. Last week, Gov. Eliot Spitzer announced that the federal stimulus rebate payments will not be subject to New York personal income tax.

I suggest you check with your state's officials. Don't be surprised if they don't have an answer for you yet. Since the stimulus checks will be arriving in 2008, state lawmakers might not have yet considered how they will handle taxing or not taxing the federal money next year when residents have to file their state tax forms.

You can find a link to each state's tax department with contact information in Bankrate's state tax directory pages. Links to the 50 governor home pages can be found at this Global Computing Web page.

If you find out the specifics of how your state plans to tax (or not) your federal rebate money, drop me a note and I'll share the info with the rest of our readers.

And we'll see you back here later today with some more common rebate questions and answers.

-- Posted: Feb. 28, 2008

 
 
 
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