Fact Sheet – Taxability of 2005 Nevada Rebates

Background:

In 2005 the state of Nevada made two types of tax surplus rebate payments to taxpayers. 

The first type of payment was a $75 payment to individuals 65 or older as of January  1, 2005, who had a state identification card from Nevada but no vehicle registered in Nevada during 2004. 

The second type was a payment to taxpayers, both individuals and businesses, who had a vehicle registered in Nevada during 2004. The amount of the payment was $75 or, if greater, the actual amount of basic governmental services tax and registration fee paid by the taxpayer up to $275 per vehicle. 

Payments to taxpayers who did not register a vehicle during 2004:

The state of Nevada paid $75 to each individual 65 or older as of  January 1, 2005,
who had an identification card from the Nevada Department of Motor Vehicles, but no vehicle registered in Nevada during 2004. This type of payment is taxable as ordinary income. If the taxpayer has sufficient income to file a return, the rebate should be reported as “other income” on line 21 of Form 1040, line 3 of Form 1040EZ or line 13 of Form 1040A. 

Payments to taxpayers who registered a vehicle during 2004:

All taxpayers paid a basic governmental services tax and a vehicle registration fee when they registered a vehicle during 2004. The basic registration fee for a passenger car was $33. 

The state of Nevada made a payment to each taxpayer who registered a vehicle in Nevada during 2004. Both business and individual taxpayers received these payments. Taxpayers received at least $75 but no more than $275 per vehicle registered during 2004. 

The Federal income tax treatment of this type of payment depends on whether the taxpayer paid $75 or more in basic governmental services tax and fees to register a vehicle during 2004. 

Note: The Nevada rebate did not apply to supplemental governmental services tax in Churchill, Clark, and Washoe counties or amounts paid for sales taxes, specialty plate fees, title fees, or other miscellaneous charges. So those amounts are not included in the determination of whether the rebate is taxable. 

If more than $75 was paid:

For taxpayers who paid $75 or more in basic governmental services tax and fees to register a vehicle during 2004, the entire state payment is treated as a refund of the tax and fee paid to register the vehicle. Generally, taxpayers who receive a refund of a tax or fee that they deducted on their federal income tax return for a prior year must include the amount of the refund in income up to the extent they benefited from the prior deduction. 

 Individuals:

Individual taxpayers who filed a Form 1040A or Form 1040EZ for 2004 did not deduct the tax or fee; therefore the refund of the tax and fee is not taxable. Individual taxpayers who filed a Form 1040 with a Schedule A for 2004 may have deducted the tax. Those taxpayers who deducted the tax must include the refund in income up to the extent they benefited from the deduction on a prior year’s federal income tax return.  For more information for individual taxpayers, see the topic of Recoveries under the Miscellaneous Income section of IRS Publication 525, Taxable and Nontaxable Income.

 Businesses:

The basic governmental services tax and registration fee would have been deductible if the vehicle was used by a business, including an individual taxpayer who filed a Schedule C or F. Business taxpayers who deducted these amounts must include the refund in income to the extent they benefited from the deduction on a prior year’s federal income tax return. For more information for small business taxpayers, see the topic of “Recovery of items previously deducted” under the heading of Other Income in the Business Income section of IRS Publication 334, Tax Guide for Small Business. 

If less than $75 was paid:

For taxpayers who paid less than $75 in basic governmental services tax and fees to register a vehicle during 2004, the state payment is treated as a refund of the tax and fee up to the amount actually paid for tax and fees. The amount by which the $75 received is greater than the amount of tax and fee the taxpayer paid is taxable as ordinary income. Individual taxpayers should report this portion as “other income” on line 21 of Form 1040, line 3 of Form 1040EZ or line 13 of Form 1040A. (See the discussion above for the treatment of the amount of the rebate equal to the amount of the tax and fees paid.)

 Examples:

• A taxpayer registered one vehicle in Nevada in 2004. They received a rebate of the entire amount paid to register the vehicle. For 2004, the taxpayer filed a Form 1040A and did not deduct the tax or fee so the rebate is not taxable and does not have to be reported to IRS as income.
  
• A small business paid $400 in taxes and fees to register two vehicles and received a rebate for $400. They deducted the $400 in taxes and fees on Schedule C with their 2004 Federal Income Tax Return. The rebate amount of $400 must be reported as income on the 2005 return.
  
• A taxpayer, who is over 65 and did not register a vehicle in Nevada in 2004, received a $75 rebate. The taxpayer’s total income (including the $75 rebate) is not enough to require filing of a Federal Income Tax Return. This taxpayer does not file a Federal Income Tax Return to report this rebate as income.
  
• An individual taxpayer paid $41 for tax and fees to register a vehicle in 2004 and received the minimum rebate of $75 in 2005. For 2004, the taxpayer filed a Form 1040A and did not deduct the tax or fee. The difference between the rebate and the tax and fees actually paid is $34, which should be reported as “other income” on line 21 of Form 1040,line 3 of Form 1040EZ or line 13 of Form 1040A on the 2005 return.