As I said, STATES AFFECT REBATES!!

So, when all the fury was going on around the economic stimulus package I reported on states that taxed the rebate. And although not all states announced officially what they'd do, some did.

Still wondering "Where's my tax rebate?" Well, it seems like in addition to taxing the rebate, some states are going as far as seizing them to satisfy state tax liabilities. See the full article by Tax Girl for specifics, but the gist is that states are protected under the Treasury Offset Program (TOP) and can legally do this. However, they can do this only to refunds and over payments, of which the rebate is neither. Tax Girl raises this issue, which is a good one... but it's doubtful the IRS or state tax departments will stop or return any money due to what seems like semantics.

Hardest hit by the TOP regulation? Residents of New York, Missouri, and Georgia. Sorry guys!

See Don't Mess With Taxes for further coverage on this topic!

UPDATE: Rockin' The USA, States Tax Rebate?

Update:

Louisiana, California, Iowa NOT taxing the rebate.

Taxing the Rebate
Alabama

Not Taxing the Rebate
Ohio
New York
Oregon
Connecticut
Louisiana
California
Iowa

See more about these states here, here, and here.

Rockin' The USA: States Tax Federal Rebate?

I previously blogged about states taxing the rebate.

It seems this week we have a couple more states deciding what they want to do...

Ohio: Not taxing rebate. Congrats Ohio!!

Connecticut: Also not taxing...

AND, Ohio does us a favor and explains why some states may tax the rebate (thanks again Ohio!)

"Now, some states WILL tax the rebate.

Reason: those states allow their taxpayers to deduct federal income taxes paid. So, a rebate is a reduction of the federal income tax which the taxpayer (in such states) had previously deducted. A reduction of a deduction means that the taxable income (for that state) has now increased (over what that individual's taxable income in that state was prior to the receipt of the rebate)."

Results so far...

Taxing the Rebate
Alabama

Not Taxing the Rebate
Ohio
New York
Oregon
Connecticut

Another interesting thing to note is that Connecticut may we working on their own state tax rebate. See the full article here.

Can States Tax the Federal Rebate?

There's been little coverage about this topic but slowly more people are becoming aware that the tax rebate could actually cost them money on their state return.

So far New York has publicly stated that the rebate will not affect, or be taxed, on the state return. Recently Oregon has made a similar claim, although the rebate made need to be included on their return. (If you're in Oregon, I'd ask your tax preparer about this.)

One of the losers so far though seems to be Alabama, as they are one of the first states to deliver the news that the Federal rebate will we taxable on the state return.

More to come as I hear about it...

For more info, see my coverage on the 2008 Stimulus Package.

**Additionally, it's interesting to note that some states are considering their own economic stimulus package in rebate form. See this Associate Press article for more details.**