Cash for Clunkers Tax Rules

What are the Cash for Clunkers tax rules? Do you have to pay federal income tax on the Cash for Clunkers program?

There seems to be a lot of confusion around the tax rules for the Cash for Clunkers program which ended this week. One of the tax rules currently being debated is whether or not you need to pay federal income tax on the value of the cash for clunkers program voucher.

Here is the federal income tax rule from the official Cash for Clunkers government website:

(h) Exclusion of Vouchers From Income
(1) FOR PURPOSES OF ALL FEDERAL AND STATE PROGRAMS- A voucher issued under this program or any payment made for such a voucher pursuant to subsection (a)(3) shall not be regarded as income and shall not be regarded as a resource for the month of receipt of the voucher and the following 12 months, for purposes of determining the eligibility of the recipient of the voucher (or the recipient’s spouse or other family or household members) for benefits or assistance, or the amount or extent of benefits or assistance, under any Federal or State program.

(2) FOR PURPOSES OF TAXATION- A voucher issued under the program or any payment made for such a voucher pursuant to subsection (a)(3) shall not be considered as gross income of the purchaser of a vehicle for purposes of the Internal Revenue Code of 1986.

So there’s your answer. The voucher is not subject to federal income tax.

For more information, including state tax information, see Cash for Clunkers Tax Rules and the Cash for Clunkers Business Tax Rules.


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