Is cash for clunkers taxable? Yes, no, maybe. Even though the Cash for Clunkers program ended, the cash for clunkers tax is generating debate.
The cash for clunkers tax is confusing because people are mixing up three kinds of taxes: federal income tax, state income tax, and state sales tax. On top of that, it would be way too easy if all the states had the same rules. Let’s sort through the tax on cash for clunkers.
Is the cash for clunkers program subject to state income taxes? Hmmm. Here’s where it gets a little fuzzy.
Of course it will depend on where you live, as each state has their own income tax laws. Many states base taxable income on the federal income, which we already stated will not include the cash for clunkers. The cash for clunkers program also states that the voucher will be excluded as income for all state benefit or assistance programs.
While we could assume that those rules lead us to the conclusion that the program is not subject to state income tax, I’m never one to assume anything when it comes to taxes!
To help us draw the correct conclusion, some states are explicitly stating that cash for clunkers will not be taxable income in their states, including Arizona and Nebraska.
Unfortunately, I haven’t found anywhere that is consolidating the answers to the state income tax question. If you find a source, let me know!
You can get my latest articles full of valuable tips and other information delivered directly to your email for free simply by entering your email address below. Your address will never be sold or used for spam and you can unsubscribe at any time.
Advertiser Disclosure: MyDollarPlan.com is an independent, advertising-supported service. The offers that appear on this site are from companies which MyDollarPlan.com receives compensation. This compensation may impact how and where products appear on this site, including, for example. the order in which they may appear within listing categories. Other factors, such as our own proprietary website rules and the likelihood of applicants' credit approval also impact how and where products appear on this site. MyDollarPlan.com does not include the entire universe of available financial or credit offers.