Attorney General Mayes Urges IRS to Reverse Decision Affecting Recipients of the Arizona Families Tax Rebate

PHOENIX – Attorney General Kris Mayes, in a letter sent to the IRS Commissioner earlier today, requested the agency reconsider its decision to tax the 2023 Arizona Families Tax Rebate. This state-provided family tax relief is part of Arizona's budget and mirrors tax relief efforts in other states where taxpayers were not subjected to federal taxation for their rebates. 

"The IRS should act promptly to reverse this decision and provide clear guidance to Arizona taxpayers as tax season nears," said Attorney General Mayes. "If they do not, my office is prepared to examine all legal avenues to ensure these dollars stay in the pockets of Arizona taxpayers."

Attorney General Mayes's letter highlighted the seemingly arbitrary and inconsistent approach by the IRS, arguing that Arizona taxpayers should not be taxed for rebates similar to those in other states where taxpayers have not been hit with a federal tax bill for state rebates they received. 

Attorney General Mayes also argued that under the IRS's 2023 guidance, Arizona's rebate should be excludable from federal income under the general welfare exclusion—or, at a minimum, it should be excludable to the extent a Rebate amount does not exceed state taxes that a taxpayer actually paid and did not deduct from their federal income.