Arizona State Tax Credits - It Pays to Give

Author: Suzy Greenwood

Arizona provides its taxpayers unique opportunities to donate to schools and charities in lieu of paying state taxes.  These are known as Arizona State Tax Credits and here’s how they work:

  • You make a donation to one or more of the qualified schools or organizations,
  • You get a dollar-for-dollar tax credit, up to the amount you owe on your state taxes.  You can’t claim more than you owe, but you can reduce your tax liability to zero!

Let’s look at the options and amounts available to individuals for the upcoming tax season (2019). 

You can claim a tax credit for making contributions or paying fees to an Arizona public school for support of qualified activities or programs.  These go directly to the school, and for tax purposes can be up to $200 for single filers, or $400 for those who are married filing jointly (MFJ).

Next is the Private School Tax Credit.  Contributions are made to a qualifying School Tuition Organization (STO) of which there are many.  These funds are used to create tuition scholarships for needs-based youth enrolled in a qualified private school.  Combined with the Certified School Tuition credit amount, total tax credits here can be $1,107 for single filers, or $2,213 for MFJ.

You can also get a tax break by making contributions to two types of charitable organizations: one for donations to Qualifying Charitable Organizations (QCO) and the second for donations to Qualifying Foster Care Charitable Organizations (QFCO).  (Lists of organizations )

All around us are wonderful organizations helping others and doing good!  Many of these non-profits qualify for the QCO tax credit, and will proudly share that information with you if you ask.  You can donate to one, or to several to be eligible for a tax credit.  The amount of the credit will be governed by your filing status, your tax liability, the aggregate total of your donations to QCOs, and the category limits.  For qualified charitable organizations, total tax credit limits are $400 for single filers, $800 for MFJ.

The maximum tax credit amounts for donations to Qualifying Foster Care Charitable Organizations are $500 for a single taxpayer and $1,000 for MFJ taxpayers. 

You can mix and match categories, or donate up to the maximum allowed in each category!  A couple important things to remember…deadlines for qualifying donations vary, so know what needs to be done by December 31, and what can be done through April 15th of the following year, aka tax filing deadline.  Also, let your heart dictate your overall giving, and then let your accountant help you apply the portion equal to your AZ tax liability so you don’t miss out on these great credit opportunities!

If you are a business owner, keep reading…

Arizona also has a Corporate Tuition Tax Credit.  In 2006, corporations became eligible to re-direct their Arizona state tax liability to private schools.  This is a historic opportunity.  It allows companies, within the program guidelines, to give 100% of their state tax liability to qualified School Tuition Organizations which support tuition costs for low income or “needs based” students.  Arizona includes in its guidelines each year, a statewide cap on the number of dollars.  Corporate tax credit applications are accepted by the Arizona Department of Revenue (ADOR) until that maximum is met.  For the 2019-2020 fiscal year, the state cap is $106,993,207. (The cap for 2018-2019 has already been met.) Minimum contribution amount of $5,000 may apply.  Once the cap is met, no more applications will be accepted.  Corporations have 20 days to fund after acceptance by the state of their application.  Tax credits are awarded by ADOR beginning July 1st, so applications must be completed prior to that date. This is just a brief overview for informational purposes.  Please see your tax professional to learn more and to see if this is appropriate for your business.

Submitted by Suzy Greenwood of Arizona Tax Advisors