Seniors May Get $250 in New Tax Rebate from Arizona

Published on

Lawmakers in Arizona are working on legislation that, if approved, could give taxpayers aged 65 years or above a $250 rebate. The new tax rebate from Arizona would cost the state about $390 million, which is already facing a budget deficit. The legislation is heading to the state Senate floor.

Arizona Sen. Anthony Kern (R-Glendale) has proposed this new tax rebate. Sen. Kern says the proposed legislation is based on last year’s family income tax rebate, which got support from Democratic Gov. Katie Hobbs.

New tax rebate from Arizona: who will get it?

“It mirrors the family tax rebate we had last year that Gov. (Katie) Hobbs was so happy about last session,’’ Sen. Kern said.

Last year’s legislation, costing about $260 million, gave $250 to eligible families for every child younger than 17. Kern’s proposal, on the other hand, would give eligible taxpayers 65 and older a one-time rebate of $250.

Kern’s original proposal offered a rebate to taxpayers 55 or above, but the revised proposal that went to the Senate Appropriations Committee earlier this week changed the age to 65 and above. Although the change in age lowers the cost to the state, the legislation is estimated to cost $390 million.  

To qualify for the new tax rebate from Arizona, a person must have filed a full-year resident tax return for 2022 and had a liability of at least $1 in 2020, 2021 or 2022. Both spouses could qualify for the rebate if they are 65 or above.

If Kern’s proposal moves forward, it will become part of the budget negotiations between the Legislature and governor.

Do you have to pay federal tax on the rebate?

If the new tax rebate from Arizona is approved, recipients may have to pay federal tax on it just like they are liable to pay on last year’s one-time rebate. In January, the IRS determined that Arizonans would have to pay federal income taxes on the state tax rebates, which were part of the state budget in 2023.

This IRS decision stirred a controversy resulting in Arizona Attorney General Kris Mayes filing a lawsuit against the IRS.

In February 2023, i.e., about three months before Arizona approved the tax rebate, the IRS issued guidance that rebates approved the year before were not subject to federal taxes. Then, in August, the agency issued additional guidance, saying the February guidance only applies to the 2022 tax payment.

In her lawsuit, Mayes noted that the IRS “did not identify a single program that it had found nontaxable for 2022 but would have found taxable in other years.”

Further, Mayes noted that the IRS’s decision to tax the rebate means recipients will have to pay $20.8 million in federal taxes which would otherwise remain in the state. The money going out of the state also means $480,000 less in sales taxes for the Arizona state and local governments.