Just when you thought you were getting the hang of this whole rebate check thing, some states are adding more confusion to the mix by announcing that they'll be taxing the federal stimulus checks. Your rebate check won't be taxed on the federal level, but your state could decide to tax the checks as part of your personal income tax. Many states haven't reached a decision one way or another, and it's possible that they won't have any news in this regard until tax time next year when we're filing our 2008 taxes. A handful of states have already given their residents a heads up about what they can expect next year. To find out if your state has come to a taxing conclusion just
New York won't be taxing the rebate checks because, as explained by NY Governor Eliot Spitzer, "During these challenging fiscal times, it is particularly important for all New Yorkers to know that they will retain the full amount of this rebate, and will not be taxed on these amounts next year.” Oregon, Iowa, and California have all followed suit and will not be taxing their residents on the stimulus rebate checks.
If you live in Alabama, it seems your state is planning on taxing the checks because its budget could use the $55 million it would receive from doing so. And if you're sitting on the edge of your taxpayer seat and can't wait for your state to make an announcement, Bankrate has a directory of every state's department of revenue along with phone numbers and you could try giving them a friendly call. You know, just to check in.