Your Arizona Family Rebate is Taxable: What to Know
Thousands of Arizona families will need to report income from special child tax relief payments received last year.


If you received an Arizona family tax rebate last year, you will have to report that amount on your federal income tax return. The IRS has classified the rebate payments as taxable income, meaning some Arizona families might have to pay tax on the money they received.
The Arizona Department of Revenue recently confirmed this news about the Arizona Families Tax Rebate. However, the tax status of the payments could surprise the hundreds of thousands of families who believed the assistance was tax-free.
Arizona sues the IRS
Meanwhile, last month, Arizona Attorney General Kris Mayes filed a lawsuit against the IRS to prevent the agency from taxing the Arizona tax rebates. In the complaint filed in federal district court, Mayes argues that the IRS’ treatment of the rebates as taxable violates the law and is inconsistent with how the agency treated similar rebates in other states.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
"This lawsuit is about standing up for Arizona taxpayers," Attorney General Mayes said in a release. "The federal government's decision to tax these rebates is unfair and unlawful – and I will do everything I can to ensure the tax relief provided to Arizonans by their state government remains in the pockets of Arizona taxpayers, as intended."
Then, on March 13, Congressional lawmakers including House Ways and Means Committee member Rep. David Schweikert (R-Ariz.) and Reps. Juan Ciscomani, (R-Ariz.) and Rep. Greg Stanton (D-Ariz.), sent a letter to IRS Commissioner Danny Werful. That letter urged the IRS to "reconsider its determination and provide expedited relief to compliant Arizona taxpayers who have already filed their 2023 tax returns."
Here’s what else you need to know.
IRS says Arizona family rebate is taxable
As Kiplinger reported, Arizona faced a significant budget surplus of over $2 billion. During state budget negotiations, lawmakers allocated approximately $260 million to create the Arizona Families Tax Rebate. Arizona Gov. Katie Hobbs approved the state's $17.8 billion budget last summer.
- Qualifying taxpayers received the child tax rebate for up to three dependents. So, in some cases, families with multiple dependents received up to $750.
- The state distributed most of the rebates by Nov. 15 of last year.
The one-time child tax rebates were supposed to provide relief to Arizonans dealing with the challenges of high inflation. According to state estimates, around 740,000 Arizona taxpayers were eligible to receive the payments.
The IRS announcement about the payments being taxable income has raised concern. As mentioned, Arizona's Attorney General filed a lawsuit against the IRS to prevent the agency from taxing the rebates. At the same time, Arizona lawmakers are facing an estimated $400 million state budget shortfall for the current fiscal year.
What to do?
If you received an Arizona child tax rebate last year, state officials say you will need a 1099-MISC form. The 1099 is used to report income to the IRS. Usually, a 1099 form is sent automatically. However, officials have said that Arizonans should retrieve their 1099-MISCs from the Arizona Department of Revenue website.
- The 1099-MISC forms will be available at www.AZTaxes.gov.
- Once you have the 1099, you’ll want to verify that the information is correct before filing your 2023 federal income tax return.
- The IRS began accepting tax returns on Jan. 29.
This situation serves as a reminder to stay informed of federal and state tax changes. For example, the U.S. Congress is considering potential changes to the federal child tax credit that could help an estimated 15 million children and their families.
If you have concerns about how the Arizona Families Tax Rebate may affect your taxes, consult a tax professional or contact the State Department of Revenue for additional information.
Does Arizona have a state income tax?
Arizona has a flat state income tax rate of 2.5%. Arizona lawmakers passed legislation last year that cut the state’s income tax rate to the new flat rate, down from 2.98%. Arizona’s lower flat personal income tax rate initially wasn’t expected until 2024.
However, the lower rate became effective early due to higher-than-expected tax revenues. Now, state lawmakers are facing estimated revenue shortfalls as they craft a new budget.
Editor's note: This article has been updated to include information about Arizona lawmakers urging the IRS to reconsider its determination.
Related
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

As the senior tax editor at Kiplinger.com, Kelley R. Taylor simplifies federal and state tax information, news, and developments to help empower readers. Kelley has over two decades of experience advising on and covering education, law, finance, and tax as a corporate attorney and business journalist.
-
Stock Market Today: Stocks Stable as Inflation, Tariff Fears Ebb
Constructive trade war talks and improving consumer expectations are a healthy combination for financial markets.
-
What Trump’s 'Big Beautiful Bill' Means for Your Utility Bills
If passed, the 'Big Beautiful Bill' could make home energy upgrades more expensive and raise monthly costs. Here's how much more you might pay and how to prepare.
-
Homeschoolers Could Soon Save on Expenses With 529 Plans
Savings Accounts A new House GOP bill could change how you save for your child's homeschool education. Find out how.
-
Ohio Announces Two-Week Sales Tax Holiday Amid Tariffs, High Prices
State Tax Ohioans won't want to miss out on savings as pressure from tariffs spikes prices.
-
Five ‘Big Beautiful Bill’ Tax Changes to Watch in the Senate
Tax Policy The House passed its version of Trump’s "One Big, Beautiful Bill." Here’s what to look for as Senate Republicans take up the mega legislation.
-
New GOP Car Loan Tax Deduction: Which Vehicles and Buyers Qualify
Tax Breaks To fulfill Trump's campaign promise, House GOP lawmakers want to offer a tax deduction for car loan interest. How would it work?
-
Big GOP Tax Bill Could Change Your Estate Planning for 2025
Tax Law The GOP might extend and increase the higher estate and gift tax exemption and AMT thresholds. What might this mean for your estate plan?
-
New 'No Tax on Tips' Bill Approved: What to Know Now
Income Taxes Will you stop paying taxes on your tip income this year?
-
Millions Could Lose SNAP Food Benefits Under Trump Tax Cut Plan
Tax Policy The House Agriculture Committee approved nearly $300 billion in cuts to SNAP benefits, putting many at risk of hunger.
-
Missouri Leads Capital Gains Tax Repeal: Will Your State Follow?
State Tax As one state becomes a test case, policymakers and taxpayers across the U.S. will be watching closely to see what happens next.