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.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.

Sign up for Kiplinger’s Free 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
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.
-
Is Trump's Tax Plan Speeding Up the Looming Social Security Funding Crisis?
Social Security Social Security's combined retirement funds are running out of cash, and its insolvency date is expected to occur in less than a decade.
-
How to Keep Your Work Friends After You Retire
Work friendships can boost teamwork, lift your spirits, and make the job more fun. But when you retire, these friendships can fade. Here's a look at why that happens and what you can do about it.
-
New Trump Tax Bill: Five Changes Homeowners Need to Know Now
Tax Changes Trump’s new tax legislation is reshaping how tax breaks for homeowners work.
-
How the 2025 Child Tax Credit Rules Impact Single Parents
Tax Credits New changes to family tax credits, like the Child Tax Credit, will impact the eligibility of some households.
-
How Your 2025 Wedding Could Save You Money on Taxes
Tax Breaks There are some wedding expenses that are tax-deductible, and you don’t want to miss out on savings.
-
Retirees Should Watch These Four Key Tax Changes in 2025
Tax Changes This year brings key tax changes that could affect your retirement taxes and income.
-
Tariff Stimulus Checks Coming? New Proposal Seeks Tax Rebates for US Workers
Tax Breaks A new GOP bill proposes to send $600 in tariff rebate checks to eligible taxpayers. Is there a catch?
-
Biggest Winners and Losers in Trump's New Tax Plan
Tax Law Trump’s mega tax overhaul, known as the ‘One Big Beautiful Bill,’ has distinct winners and losers. Which group do you fall into?
-
Five Ways Trump’s 2025 Tax Bill Could Boost Your Tax Refund (or Shrink It)
Tax Refunds The tax code is changing again, and if you’re filing for 2025, Trump’s ‘big beautiful’ bill could mean a bigger refund, a smaller one or something in between next year. Here are five ways the new law could impact your bottom line.
-
New SALT Deduction Could Put Thousands Back in California Homeowners’ Pockets
Tax Breaks The federal state and local sales tax (SALT) deduction cap is higher this year, and could translate into bigger savings for Golden State homeowners.