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Arizona Tax Credit How-Tos: A Quick Guide

by | Apr 5, 2022 | Blog, Tax Credit Guide, Tax Credits

Are you filing your taxes this April 2022? Did you know that you can use your Arizona tax credit? Arizona offers an opportunity where taxpayers can choose where their tax money goes. Fortunately, the state has graciously provided guidelines and rules for taxpayers to follow in filing and claiming tax credits.


Arizona tax credit


Filing Your Income Tax Return and Claiming Arizona Tax Credit For 2021

Taxpayers should be aware that the 2021 individual tax return filing is April 15th, but since it falls on a federal holiday, taxpayers still have until Monday, April 18th, 2022, to file their income tax on time. It is also the cut-off to claim your earned tax credits. After April 15th, tax credits that are not claimed can be claimed for the next tax season.

What is the penalty if you file your income tax return (ITR) late?

It reminds everyone to file their income tax return (ITR) on time. The law states that if a taxpayer fails to file their income tax return on or before the due date required by law or an extended due date by the department, a penalty of four and one-half percent of the tax shown on the return shall be placed back to the tax for each month or fraction of a month elapsed from the due date to the date the income tax return has been filed. The total penalty shall not exceed twenty-five percent of the tax found to be remaining due.

Difference of Tax Deduction and Arizona Tax Credit 

Basically, tax deduction and Arizona tax credit reduce the taxpayer’s tax liability but are at a different stage in computing the tax liability. A tax deduction reduces the taxable income, while the tax credit reduces the tax due or tax liability. The tax credit has a greater impact on your tax liability since it is a dollar-for-dollar computation to your tax liability.

Tax Credits: Reduce or Zero Out Your Tax Liability

Tax credits can zero out your tax liability and give you a tax refund. There are several types of tax credits, but there are three types which are non-refundable, refundable, and partially refundable.

  1. Non-refundable Tax credits: These tax credits are not refundable but can reduce or zero out the tax reliability of the taxpayer. Non-refundable tax credits have a maximum amount that you can use within the current tax season, and any excess can be used on the next tax season up to five-year validity.
  2. Refundable Tax credits: These tax credits can reduce or zero out the taxpayer’s tax liability, and any excess of the tax credit will be returned or refunded to the taxpayer.
  3. Partially refundable tax credits. These tax credits have a non-refundable and a refundable portion: Some rules are followed when a tax credit can be used as a non-refundable and a refundable amount.

Attain AZ Tax Credit Through Non-Profit Organizations

Qualifying charitable organizations (QCOs) and Qualifying Foster Care Charitable Organizations (QFCOs) are examples of non-refundable tax credits. These two types of organizations can give tax credits by accepting donations and sponsorships to the less fortunate community. It means that a taxpayer helps provide funds in monetary kind to help these organizations continue to operate and deliver their various charitable services.

These organizations are certified under the Arizona tax credit law, under the United States of America internal revenue code (IRC) section 501 (c)3. These certified organizations must apply for certification when the State of Arizona demands re-certification of a certain organization to determine its operation pursuant to the rules of a non-profit charitable organization.

What are Qualifying Charitable Organizations and How To Claim Tax Credit Through Them

A qualified charitable organization is an institution that fulfills the conditions set by IRC 501 (c ) 3 is a tax-exempt entity that is a non-profit, philanthropic, and does civic activities. This type of organization can provide immediate basic needs of residents, especially low-income families or individuals that lack the financial capability for their chronic illness and disabilities. The earnings cannot go to a private party or individual but to third-party organizations to improve charitable and humane services. Some examples of charitable organizations are religious and educational organizations, non-profit veteran organizations, orphanages, cemetery and burial companies, charities, some legal companies, and foundations can also be considered.

Donating to one or two qualifying charitable organizations can earn a taxpayer tax credit amounting to a maximum $400 tax credit when filing individually and likewise a head of household while a maximum of $800 for a couple filing jointly. To claim this type of Arizona tax credit, use form 321 together with your ITR, W2, and with the receipt that comes from the charitable organization to whom you have donated. See the QCO’s lists link.

What are Qualifying Foster Care Charitable Organizations?

Qualified foster care organizations (QFCOs) have the same goals and visions as qualifying charitable organizations providing immediate needs to Arizona residents, especially low-income families and individuals. They do not have insurance and financial capability for the needed services and the charitable organization to provide at least 200 qualifying individuals in the foster care category.

Donating to this type of charitable organization can provide the taxpayer with a maximum $500 tax credit when filing individually and for a head of household while a maximum of $1,000 of Arizona tax credit for married couples filing jointly. To claim this type of tax credit, use form 352 together with your ITR, W2, and the receipt that comes from the charitable organization as proof of your donation. See the QFCO lists link.


Arizona tax credit


Public School Tax Credit and how to claim

Public school tax credits are non-refundable tax credits. It means contributing or paying fees directly to a public school in Arizona State for support as defined by the state legislature. The taxpayer can claim a maximum $200 tax credit for filing individually or a full $400 tax credit for a couple filing jointly. To claim this type of tax credit, use form 322 and fill up the required codes that the revenue needed to identify the public school. File before the due date of the tax season together with your ITR, W2, form 322, and the receipt from the school and other documents as required.

Refundable Tax Credits

One of the most common examples of a refundable tax credit is the Earned Income Tax Credit (EITC), created to help ease low-income earners’ taxes. The EITC was built in 1975 and modified to strengthen the fight against poverty. Certain studies say that it has a high error rate and that requirements are generated to sort out the taxpayers who need this tax credit. It requires a third-party document for income and wages to verify the taxpayer’s validity for the Arizona tax credit claim.

Partially Refundable Tax Credits

You must also look into the partially refundable tax credit known as the child tax credit (CTC). Parents with qualifying child dependents under 17 years and adjusted gross income below $200,000. Eligible taxpayers with low income can claim a $2000 Arizona tax credit for each qualifying child with up to $1400 of a refundable tax credit under this credit.

Final Thought

Taxes are to fund the government of its operations and expenditures. Tax credits are made to ease the low-income and low-wage earners to cope with their daily or monthly spending. It is the taxpayer’s job to contribute to the well-being of the state or the federal government to have enough funds to operate within its norm. Anyone who has an extra fund to share with the less fortunate individuals by donating or sponsoring monetary funds is appreciated by the state by giving back tax credits in appreciation and gratitude to the kind-hearted taxpayer. The government needs your help to track its funds by filing your correct income tax return on time.

Children’s Care Arizona is dedicated to helping children in need and assisting taxpayers to direct their state tax liabilities in helping other people. We can help you understand more about the process. Call us today at (480) 795 3775 or email us at support@childrenscareaz.org.

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