Is the NJ ANCHOR Benefit Federally Taxable? SALT Cap and 1099-G

For most recipients, the NJ ANCHOR benefit is not federally taxable. If you took the standard deduction on your federal return in the year you paid the property taxes ANCHOR is relieving, the payment is not includible in your gross income and does not appear on your federal return at all. If you itemized and deducted state and local taxes that year, a portion of the payment could theoretically be taxable as a recovery, but the tax benefit rule and the SALT deduction cap usually reduce that amount to zero for New Jersey filers.

If You Took the Standard Deduction

About 70% of filers claim the standard deduction, and for them the analysis is short. IRS Notice 2023-56 states that a state property tax refund related to a prior payment of state taxes is not includible in gross income if the individual claimed the standard deduction in the year those taxes were paid.¹

The reasoning is simple. You never deducted the property taxes federally, so there is nothing to recover. You owe no additional tax, and you do not need to report the ANCHOR payment anywhere on Form 1040.

If You Itemized: The Tax Benefit Rule

If you itemized deductions and wrote off state and local taxes (including property taxes) in the year the property taxes were paid, federal law treats the ANCHOR payment as a potential recovery of a previously deducted amount. Under 26 U.S.C. § 111, a recovered amount is included in gross income only to the extent it actually reduced your tax in the prior year.²

IRS Notice 2023-56 applies this directly to state property tax refunds: an itemizing individual must include the refund in gross income “to the extent that the individual received a Federal income tax benefit from the prior Federal income tax deduction.”¹

The mechanics live in the State and Local Income Tax Refund Worksheet in the Schedule 1 (Form 1040) instructions. That worksheet compares your prior-year itemized deductions to what the standard deduction would have been. If your itemized total barely exceeded the standard deduction, only the difference is potentially taxable. If you would have landed on the standard deduction anyway without those extra taxes, there was no tax benefit and nothing to report.³

How the SALT Cap Changes the Math

The state and local tax deduction cap matters here, and it matters especially for New Jersey. For tax years 2018 through 2024, federal law capped the SALT deduction at $10,000 ($5,000 for married filing separately). Starting in 2025, the One Big Beautiful Bill Act raised that cap to $40,000 for single and joint filers ($20,000 for married filing separately), with 1% annual indexing, making the cap approximately $40,400 for 2026.

IRS Revenue Ruling 2019-11 addresses recoveries when the SALT deduction was capped. If your total state and local taxes exceeded the cap and your deduction would have remained at the cap regardless of the refund, you received no tax benefit from the overpayment, and the recovery is not includible in gross income.⁴

An example makes the rule concrete. Suppose in a prior year your combined state income tax and property taxes totaled $18,000, but the SALT cap limited your deduction to $10,000. If you later receive a $1,500 ANCHOR payment tied to those property taxes, your taxes after the refund would still be $16,500, well above the $10,000 cap. Your federal deduction would not have changed. The ANCHOR payment produced no federal tax benefit, so it is not taxable.⁴

Many New Jersey itemizers during the $10,000 cap years (2018–2024) had total SALT well above $10,000, given the state’s property tax levels. For those filers, ANCHOR payments related to those years are almost certainly not taxable even under the itemizer analysis. With the higher $40,000 cap for 2025 and beyond, fewer taxpayers will hit the ceiling, but the same principle applies to anyone who does.

You Will Not Receive a Form 1099-G

The New Jersey Division of Taxation confirms that payments and credits for property tax relief programs are not included on Form 1099-G. The 1099-G forms the state issues reflect state income tax overpayments in Box 2, such as excess withholding or estimated payments. ANCHOR is a property tax relief program and falls outside that reporting.⁵

The absence of a 1099-G does not eliminate your reporting obligation if you actually owe tax on the recovery. But for most recipients, the standard-deduction analysis and the missing 1099-G together mean the ANCHOR payment simply does not appear on your federal return.

Reporting a Taxable Recovery

If you itemized, received a real federal tax benefit from the property tax deduction, and the SALT cap did not wipe out that benefit, the taxable portion of your ANCHOR payment goes on Line 1 of Schedule 1 (Form 1040), which covers taxable refunds, credits, or offsets of state and local income taxes.⁶ Use the State and Local Income Tax Refund Worksheet in the Schedule 1 instructions to calculate the taxable amount.³

New Jersey does not tax ANCHOR payments for state income tax purposes, so no state reporting is required regardless of how the federal side comes out.⁷

Fixing a Prior Return Where You Overreported

If you received an ANCHOR payment in a prior year and reported the full amount as taxable income on your federal return when you should not have, you can correct it by filing Form 1040-X for the affected year. Column A shows the original figures, Column B the net decrease, and Column C the corrected amounts.⁸

In Part II, explain that you are removing a state property tax relief payment that was not a taxable recovery under the tax benefit rule, or that you took the standard deduction and the payment was not includible in income. Lowering your adjusted gross income can affect other items on the return, since some credits and deductions phase in or out based on AGI, so refigure those and attach any supporting schedules. File a separate 1040-X for each year you need to correct.⁸

1
IRS.gov. IRS Notice 2023-56 – Federal Income Tax Consequences of Certain State Payments
2
Office of the Law Revision Counsel. 26 USC 111 – Recovery of Tax Benefit Items
3
Internal Revenue Service. Publication 525 (2025), Taxable and Nontaxable Income
4
IRS.gov. Revenue Ruling 2019-11
5
NJ Division of Taxation. Frequently Asked Questions – Form 1099-G and Form 1099-INT
6
IRS.gov. 2025 Schedule 1 (Form 1040) – Additional Income and Adjustments to Income
7
NJ.gov. NJ Division of Taxation – Treatment of New Jersey Property Tax Benefit Payments
8
Internal Revenue Service. Instructions for Form 1040-X Amended Individual Income Tax Return