Seniors Could Get $250 in New Tax Rebate in Arizona

Arizona lawmakers are preparing a bill that, if approved, would provide a $250 rebate to taxpayers 65 and older. Arizona’s new tax refund will cost the state about $390 million, which is already facing a budget deficit. The bill is headed to the state Senate.

Arizona Senator Anthony Kern (R-Glendale) proposed this new tax refund. Senator Kern said the proposed legislation builds on last year’s household income tax refund, which received support from Democratic Gov. Katie Hobbs.

Arizona’s New Tax Refund: Who Will Get It?

“What Governor (Katie) Hobbs was so excited about last session is that it reflects the family tax returns from last year,” said Senator Kern.

Last year’s bill, worth about $260 million, gave eligible families $250 for every child under 17. Kern’s proposal, on the other hand, would provide a one-time rebate of $250 to eligible taxpayers age 65 and older.

Kern’s original proposal would have provided a rebate to taxpayers 55 and older, but an amendment submitted to the Senate Appropriations Committee earlier this week changed the age to 65 and older. Although the age change would reduce costs to the state, the bill is estimated to cost $390 million.

To receive a new tax refund in Arizona, you must file a full 2022 resident tax return and owe at least $1 in 2020, 2021, or 2022. If both spouses are age 65, they may be eligible for a refund. Or more.

If Kern’s proposal advances, it would become part of budget negotiations between the Legislature and the governor.

Do I have to pay federal taxes on the rebate?

If Arizona’s new tax return is approved, beneficiaries may have to pay federal taxes on it, just as they had to pay last year’s one-time refund. Last January, the IRS ruled that Arizona residents would have to pay federal income taxes on their state tax returns that are part of the 2023 state budget.

The IRS’s decision sparked controversy and led Arizona Attorney General Kris Mayes to file a lawsuit against the IRS.

In February 2023, about three months before Arizona is scheduled to approve tax returns, the IRS issued guidance stating that federal taxes would not apply to refunds approved in the previous year. Then in August, the agency issued additional guidance saying the February guidance only applies to 2022 tax payments.

Mayes noted in the lawsuit that the IRS “has not identified a single program that has been identified as tax-exempt in 2022 but taxable in other years.”

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