IRS Clarifies Rules That Apply to Homeowners Tax Relief Rebates

SPRINGFIELD -- Governor George H. Ryan said today that Illinois residents who took a standard deduction on their federal income tax returns this year will owe no federal income taxes on the Homeowners Tax Relief rebate check that is scheduled to be mailed out soon by state government.

Ryan said that the Illinois Department of Revenue has obtained a ruling from the U.S. Internal Revenue Service that outlines the circumstances under which homeowners have to pay federal income taxes or would not have to pay federal income taxes.

The amount of the rebate check is not taxable for persons who took the standard deduction on their federal income tax returns that were due in April of 2000.

The amount of the rebate check is taxable as income to persons who itemized their federal deductions on Schedule "A" of their federal income tax returns that were due in April of 2000.

"We sought this definitive answer from the IRS so taxpayers receiving a rebate do not have to ask the IRS individually to determine their federal tax obligation for the current tax year," Ryan said.

State Revenue Director Glen Bower said that the IRS has determined that taxpayers will have to report the rebates as income on next year's federal income tax return only if they already deducted their tax payments when they itemized their federal deductions last spring. "Simply put, the IRS is saying you can't deduct taxes you have paid a second time," Bower added.

Earlier this year, Ryan signed into law House Bill 3876, which established the Homeowners Tax Relief program. The General Assembly budgeted $280 million for the program and an estimated 2.25 million Illinois taxpayers are eligible for the one-time rebate. The average rebate check will be $125 and, by law, the rebate check cannot exceed $300 for a homeowner's principle residence.