NCPA - National Center for Policy Analysis

Some States May Take Part of Rebate Money Back

June 7, 2001

Nine states have laws on their books that would make the federal tax rebates being mailed out this summer subject to state income taxes.

Taxpayers in Iowa, Oklahoma, Alabama, Louisiana, Missouri, Montana, Oregon, North Dakota and Utah may have to send a small portion of their rebates -- which are up to $300 for individuals and $600 for couples filing jointly -- back to their states.

  • The laws -- which were designed to give taxpayers a break -- let people deduct federal tax payments from their state tax liability.
  • So when those payments go down, their liability goes up.
  • In Iowa, for example, taxpayers would have to pay $14.57 on the average federal rebate of $291.
  • Iowa politicians are expected to debate whether to make the rebates tax-exempt.

As one Missouri taxpayer has been quoted as saying, "I figured there had to be a catch somewhere."

Source: Associated Press, "Nine States May Tax Federal Rebate," Washington Times, June 7, 2001.


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