The "no state tax of the stimulus rebate" column, that is.
That word comes directly from the communications staff of the Ohio Treasurer’s Office, which dropped me an e-mail with the good news. Thanks, Ohio!
Here’s the scoop:
The "rebate" is merely a return/refund of federal income tax which the recipient previously paid. A refund of such tax is not "income" under Internal Revenue Code section 61 and, thus, is not part of federal adjusted gross income. Ohio’s "starting point" for Ohio income tax is federal adjusted gross income. Nothing in the Ohio Revenue Code requires that the taxpayer, when computing Ohio adjusted gross income, must add back federal income tax refunds.
So, the rebate is not subject to Ohio income tax.
Ohio tax officials go the extra mile and explain why it is that some states will ask that part of the federal payment go into their treasuries:
Now, some states WILL tax the rebate.
Reason: those states allow their taxpayers to deduct federal income taxes paid. So, a rebate is a reduction of the federal income tax which the taxpayer (in such states) had previously deducted. A reduction of a deduction means that the taxable income (for that state) has now increased (over what that individual’s taxable income in that state was prior to the receipt of the rebate).
This is very welcome information. Not the part that says some states will tax the rebate, but the explanation of why they will levy the tax.
So if your state does allow you to deduct federal income taxes, expect that you’ll have to pay state tax on the rebate money.
