TAXPAYERS may have to pay federal income tax on funds provided by a U.S. state as part of an inflation refund.
State officials told The U.S. Sun that the checks, which started being sent out last week, are subject to federal income tax.
New York is offering inflation refund checks up to $400.[/caption]
The checks are being sent to 8.2 million households in New York (stock photo).[/caption]
The inflation refunds checks were mailed out to eligible New York residents starting on September 26.
The checks, which are being sent to 8.2 million households, were issued as a financial rebate to offset the high inflation costs that Americans are facing.
The checks, worth up to $400, are being issued to joint and single filers who meet certain income thresholds.
Eligibility is determined by residents’ New York State Resident Income Tax Return from 2023.
Federal charges won’t be deducted from the value of the inflation refund checks and therefore, it’s up to New Yorkers to do the work.
The Gothamist first reported that residents should report the rebates on their 2025 income tax returns when they file next year.
Tim Ruffinen, the director of communications for the New York State Division of Budget, told The U.S. Sun that the government remained “laser focused” at tackling the affordability crisis with “tangible initiatives”.
Recipients are being used to keep the checks for when they are filing their federal income tax return next year.
State officials said they were unable to calculate how much the inflation refund would impact a filer’s federally taxable income, they believe it to be minimal.
Here are the estimates calculated by The U.S. Sun based on tax rates.
HOW MUCH COULD BE OWED?
The amount owed would depend on residents’ federal marginal tax rate, which is determined by Americans’ income and filing status.
The $400 checks are being issued to joint filers with incomes under $150,000.
Joint filers with incomes over $150,000 but under $300,000 can receive $300.
Therefore, joint filing taxpayers with 10%, 12%, 22% and 24% marginal tax rates could be impacted.
For the 2025 tax year, a 10% marginal tax rate will mean an estimated $40 would be owed on the $400 check.
Taxpayers at the 12% tax rate, which for the 2025 tax year applies to joint filers making between $23,851 and $96,950, will owe about $48.
At the 22% tax rate, a total of $88 will be owed on the $400 rebate.
Those making over $150,000 but under $206,700, will owe $66 on their $300 rebate.
Incomes between $206,701 and $300,000 will owe $72 on the $300 check.
Breakdown of the money owed
The highest check of $400 is being sent to New York residents who filed jointly and make under $150,000. For those who made between $150,001 and $300,000, they will receive a $300 check.
Incomes under $150,000 fall under the 10%, 12% and 22% marginal tax rate. Those eligible for the $300 fall between the 22% and 24% rates. Here are the income thresholds for joint filers:
- 10% tax rate: incomes under $23,850
- 12% tax rate: incomes between $23,851 and $96,950
- 22% tax rate: incomes between $96,951 and $206,700
- 24% tax rate: incomes between $206,701 and $394,600
How much will you owe on the inflation refund checks if you fall between these rates?
Amount owed on $400 checks:
- 10%: The amount owed will be $40
- 12%: The amount owed will be $48
- 22%: The amount owed will be $88
Amount owed on $300 checks:
- 22%: The amount owed will be $66
- 24%: The amount owed will be $72
‘HOW UNFORTUNATE’
The subjection to federal income tax has been met with backlash.
“We already thought that this was not an effective use of state funds,” Nathan Gusdorf, executive director of the Fiscal Policy Institute told The Gothamist.
“Just to compound how unfortunate this is, it’s now unnecessarily increasing total taxes paid to the federal government.”
E.J. McMahon, who served as a deputy tax commissioner under Governor George Pataki’s administration, suggested to The Gothamist that current Governor Kathy Hochul could have instead provided residents relief with a new tax credit program.
McMahon explained a tax credit program could help taxpayers reduce their state tax bills when they file next year.
Tim Ruffinen said Governor Kathy Hochul was “laser focused at tackling the affordability crisis.”[/caption]
This kind of program would not be subject to federal taxes.
“There’s an obvious political motive here, except this has been done before, in New York in particular, and it never pays off,” McMahon said in an interview with The Gothamist.
“By choosing this manner of sending money to people, the governor is basically generating $200 million in added revenue for a federal government she’s otherwise castigating for cutting her aid.”
