State argues feds can’t tax rebates

Howard Fischer

 Capitol Media Services

Uncle Sam is entitled to a share of the rebates that Arizona issued last year to families with dependents, lawyers for the Internal Revenue Service are telling a federal judge.

In a new court filing, the attorneys say that the payments of up to $750 for about 750,000 Arizona families clearly qualify as “income” under federal law. And what that means, they said, is it must be reported and taxes must be paid when Arizonans file their federal tax returns next month.

Unless Judge Murray Snow disagrees, that will mean Arizonans who got the $260 million in rebates either are writing a larger check to the IRS or getting smaller refunds. How much, however, depends on overall income and how much of a rebate they got.

There are seven federal tax brackets, ranging from 10% for individuals with a federally adjusted gross income of up to $11,000 — double that for married couples filing jointly — to 37% for those making $578,126 or more.

So, everything else being equal, someone getting a $500 rebate for two dependents who is in the 22% bracket — from $44,726 to $95,375 for individuals — owes $110 to the feds.

Snow has scheduled a hearing for April 2 on the issue.

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