Table of contents
Chapter 1 – Understanding the Tax Credit
Chapter 2 – Limits to the Tax Credit
Chapter 3 – Eligible Charity Organizations for the Tax Credit
Chapter 4 – Deadlines and Key Dates for the Tax Credit
Chapter 5 – Additional Tax Credits That Are Important to Know About
Chapter 6 – Tax Credits and Deductions: State vs. Federal
Chapter 7 – Relevant Contact Information for the Tax Credit
Chapter 8 – Key Points for the Tax Credit
Children’s Care Arizona is one of the charitable organizations in the state that offers its service without a cost to the donor or the applicant.
This guide provides one-stop information on Arizona Charitable Taxes with complete and in-depth information. With the information here, you’ll be well-guided on deciding the next course of action and taking advantage of Arizona Charitable Tax Credit.
Chapter 1 – Understanding the Tax Credit
The Arizona Charitable Tax Credit is an individual income tax credit for charitable contributions to Qualifying Charitable Organizations or QCOs. It provides a dollar-for-dollar tax benefit, allowing taxpayers to reduce their state tax liabilities for each dollar donated to charities, up the maximum allowable limits. The maximum allowable credit is $400 for a person filing single, married filing separately, and head of household, or $800 for married filing jointly.
The Arizona Charitable Tax Credit General Information
Always consult your tax advisor for advice on your specific tax situation. Here are some general guidelines for using this tax credit.
- Donations must be made by individuals. Corporations, foundations, and any other incorporated entity do not qualify.
- Donations must be made in cash. Property donations and in-kind donations such as toys or services do not count.
- Gifts to charities that are non-certified are not eligible for the Children’s Care Arizona tax credit. All donations must be made to Qualified Charitable Organizations(QCOs);
- Credits not applied to tax obligations for the current tax year can be carried forward to future tax years.
How Does The Tax Credit Work?
Here are four steps to document your donation and claim your tax credit.
- Donate to a certified charitable organization (QCO), such as a 501(c)(3) organization like Children’s Care Arizona.
- Keep the receipt of your gift from the charity in order to provide a copy of your tax return.
- Complete the relevant tax form to claim the credits for your gift(s) to QCOs: Arizona Form 321.
- Calculate your individual tax return (Arizona Form 140, 140NR, 140PY, or 140X), subtract your tax credits from your tax liability in order to lower your Arizona state tax balance. Include Arizona Form 321.
If a married couple owed $1800 in taxes and donated $800 to a qualifying charitable organization, their tax liability would be reduced to $1000.
Using Payroll Withholding with the Arizona Charitable Tax Credit
On Arizona Form 321, you are permitted to record charitable contributions made through payroll withholding. Contact your employer before setting up donations through payroll withholding and find out if they are able to withhold donations to eligible Arizona Charitable Tax Credit organizations from your pay.
How the Arizona Charitable Tax Credit Gives Taxpayers the Power
Taxpayers choose how their tax dollars are allocated by using The Arizona Charitable Tax Credit. In the example of the married couple making an $800 donation to an eligible Qualifying Charitable Organization. The taxpayer claims the maximum allowable credit for their contribution, reducing their state tax liability, dollar-for-dollar.
The couple has effectively redirected $800 of their state tax payment from the state’s general fund to the charitable organization of their choice. It gives the taxpayers the power to determine which deserving organization will receive tax revenue. Charities like Children’s Care Arizona also allow you to recommend specific schools and programs for children giving you a chance to direct tax dollars where you believe they will provide the most value to your community.
The Difference in Tax Credits and Tax Deductions
For the purpose of our example, let’s use the tax rate of 3%. Arizona’s current income tax rates can be found on the IRS website.
A tax credit lowers an individual’s tax liability (total amount of tax debt owed to the government). With every dollar an individual can claim as a tax credit, tax obligation is reduced by a dollar. A married couple making $60,000 owing $1800 in taxes and donating $800 to a qualifying charitable organization would have their tax liability reduced to $1000.
A tax deduction lowers an individual’s taxable income. With every dollar an individual can claim as a tax deduction, taxable income is reduced by a dollar. A married couple making $60,000 owing $1800 in taxes and donating $800 to an uncertified charitable organization would have their taxable income reduced from $60,000 to $59,200. $59,200 taxed at 3% would mean the couple’s tax liability would be $1776, a significantly higher payment to the state of Arizona.
The Working Poor Tax Credit
The tax credit for donations to Qualifying Charitable Organizations goes back to 1998. It used to be known as the “Working Poor Tax Credit.” This credit was expanded to also include certified charitable organizations that can provide basic needs to any Arizona resident who receives temporary assistance under benefits for needy families, are a low-income Arizona citizen or are children who have a chronic illness or a physical disability. The Working Poor Tax Credit is part of the “Arizona Charitable Tax Credit,” which is the term used to describe the tax credits for donations to QCOs.
Chapter 2 – Limits to the Tax Credit
The maximum credit allowed for contributions to QCOs for single taxpayers, married filing separately, or head of household is $400; for joint taxpayers, the maximum credit is $800.
Required Minimum Donation for the Arizona Charitable Tax Credit
There is no minimum dollar requirement. Donations to QCOs do not have to reach a minimum threshold. If you make a $5 donation record the gift on Arizona Form 321, you can receive a $5 tax credit from the state of Arizona.
Five Year Carry Forward Period
The Arizona Charitable Tax Credit allows any credits for contributions to QCOs that are not applied against tax obligations for the most recent tax year to be carried forward for five consecutive years. Only the portion of the credit that you do not apply to tax you may carry over. Any amount given that was more than the maximum credit amount will not carry over.
If our married couple from the previous example donated $1000 to a QCO and did not apply any of it that tax year, Only $800 of their $1000 donation would carry over since that was the maximum amount for a couple filing jointly.
Arizona State Tax Credits Cannot Surpass a Taxpayer’s Tax Liability
This credit is nonrefundable, and tax credits can only be applied up to a taxpayer’s current Arizona state tax liability. Meaning if you owed $200 in taxes and donated $400 to a Children’s Care Arizona, you would not be refunded the amount of the tax credit that was more than the amount of taxes due.
Standard Deduction Adjustments in Arizona
Arizona passed HB 2757, which introduced changes to the state’s standard deduction amounts. HB 2757 stipulates that Arizona’s standard deduction can be raised by 25 percent the amount a taxpayer would have claimed from charitable deductions if they had itemized their deductions. This increase ensures that taxpayers will still be incentivized to make charitable contributions.
Chapter 3 – Eligible Charity Organizations for the Tax Credit
This tax credit is meant to offer taxpayers a mechanism for helping any charity that offers services to low-income Arizona residents with chronic illnesses or disabilities.
Understanding QCOs (Qualifying Charitable Organizations)
Arizona’s Department of Revenue’s definition of QCOs is an organization that provides immediate basic needs to Arizona residents receiving temporary assistance for needy families (TANF)benefits, qualifies as a low-income resident, or are children living with a chronic illness or physically disabled. QCOs are required to spend at least half of their annual budgets on “qualified services for qualified Arizona residents,” according to ADOR.
Temporary Assistance for Needy Families (TANF)
TANF is a federal program providing grant money to states. The program has many goals. Each state determines the income threshold for eligibility. The states will utilize grant funding typically in direct cash assistance in order to help families meet their basic needs.
What is “Low-Income” in Arizona?
The income threshold differs from program to program. The intention of the Arizona Charitable Tax Credit is to encourage donations to charitable organizations that provide a large portion of services for Arizona residents that are financially insecure.
List of Qualifying Charitable Organizations (QCOs)
The Department of Revenue for Arizona updates its list of the qualifying charities that meet the Department’s certification requirements every year. You can find that list here. If you are a taxpayer considering a tax credit donation, it is recommended to confirm that the organization is certified by the agency as a qualifying charitable organization before making the donation.
Children’s Care Arizona is a 501(c)(3) organization that meets the state of Arizona’s QCO requirements for certification, qualifying the organization to receive charitable contributions under the program.
Chapter 4 – Deadlines and Key Dates for the Tax Credit
Taxpayers do not need to make contributions to QCOs before December 31 of a given year to be eligible for that tax year. Arizona allows taxpayers to claim credits for donations into April of the current year for the previous tax year. For example, in 2022, the deadline for making a charitable contribution for the 2021 tax year is April 18, 2022.
Donations from different calendar years have to be listed separately on Arizona Form 321. Cash donations that were made between January 1, 2021, and December 31, 2021, must be listed on Part 1, in section A of Arizona Form 321 (for QCO donations). Cash donations made between January 1, 2022, and April 18, 2022, are required to be listed on Part 1 in section B of Arizona Form 321 (for QCO donations).
The IRS Deadline for Credits and Deductions Are Different From State Deadlines
The IRS states that for donations to be deducted on a federal tax return, the contribution has to be made by the end of your tax year. Consult your tax advisor regarding the optimal timing of your charitable gifts when estimating your state and federal tax credits and deductions.
Chapter 5 – Additional Tax Credits That Are Important to Know About
Arizona offers additional state tax credits that permit taxpayers to donate to an array of organizations and decide how a portion of their tax dollars is used. Taxpayers can take advantage of several tax credits on the same tax return.
Public School Tax Credit
Public School Tax Credit is a nonrefundable credit for a cash contribution going to Arizona public schools, including the direct payment of specific types of public school fees, which are outlined in the instructions for Arizona Form 322. Only available for individual taxpayers who can donate to public school so they can use it towards their extracurricular activities (sports, art, music, etc.) or towards obtaining certain items such as books and equipment, school meal programs, health care supplies, and playground equipment.
The maximum credit allowed for donations to public schools is $400 for a married couple filing jointly, or $200 for single, a married couple filing separately, and someone filing as head of household. This tax credit is available for cash donations and is claimed on Arizona Form 322. The deadline for making a contribution for the 2021 tax year is April 18, 2022.
Credit for Donations to a Private School Tuition Organization
Credit for Contributions to Private School Tuition Organizations, referred to as the Private School Tax Credit, is a nonrefundable income tax credit for individuals. It’s intended for charitable contributions to private school tuition organizations (STOs) that provide educational scholarships to private school students. Only available for individuals. For the 2022 tax year, the maximum credits allowed is $1,245 for married couples filing jointly or $623 for filers that are single, married filing separately, and filing head of household.
This tax credit is available for cash donations and is claimed on Arizona Form 323. The deadline for making a contribution for the 2021 tax year is April 18, 2022.
Credit for Contributions to a Certified School Tuition Organization
Switcher Individual Income Tax Credit or Credit for Contributions to Certified School Tuition Organizations is available for individual taxpayers. The taxpayer doesn’t only claim the maximum allowable credit but also makes an additional charitable donation to a Certified School Tuition Organization (STO). Check here for the requirements defining certified STOs. Charter schools and any program the charter school runs are considered qualified schools for the purpose of this tax credit.
The maximum credit allowed for this specific tax credit for the 2022 tax year is $1,238 for married couples filing jointly, or $620 for single, married filing separately, and heads of household filers. The deadline for making a charitable donation for the 2021 tax year is April 15, 2022. The tax credit is claimed on Arizona Form 348.
Electric Vehicle Tax Credits In Arizona
Tax credits may vary for other vehicles. On the federal level, the electric vehicle tax credit was phased out by 2020. Arizona offers only minor benefits for owners of alternative fuel vehicles, such as a reduced license tax and an HOV lane exception. You can find out more here.
More State Tax Credits For Arizona
Arizona offers a few additional individuals and business tax credits. Visit azdor.gov/tax-credits to learn more, and see Arizona Form 301 for a large list of state tax credits Arizona has to offer.
Chapter 6 – Tax Credits and Deductions: State vs. Federal
While Arizona allows both tax credits and tax deductions for charitable donations, IRS rules stipulate that charitable donations – both cash and property – must be claimed as tax deductions rather than credits. The IRS only permits deductions for donations made to qualified tax-exempt organizations, such as 501(c)(3) entities and other eligible organizations.
Reducing Tax Deductions by Value Received
IRS rules state that if a taxpayer receives a benefit from a charitable donation, the taxpayer can only deduct the value of the donation minus the value of any goods or services received. If a donation of $1,000 was made in return for an item valued at $200, Arizona state and the federal government would only be able to deduct $800.
Arizona and IRS Credit Carry Forward Period
Arizona and the federal government permit a carry forward period of five consecutive years when itemizing deductions for charitable contributions. This 5-year carryforward period also applies to any tax credit under the Arizona Charitable Tax Credit.
IRS and Arizona State Charitable Donation Documentation Requirements
Both the IRS and Arizona require documentation to substantiate charitable contributions. Qualifying Charitable Organizations will provide donation receipts for use in validating state tax credits and deductions.
Arizona and the IRS allow Charitable Donations Through Payroll Withholding
The state of Arizona and the IRS allows charitable contributions through payroll withholding. Donors may validate payroll deductions through a pledge card from the charitable organization, along with either an employer pay stub, a W-2 form, or another form of employer-provided document that shows the amount that was withheld and donated.
Cares Act Impact on the Adjusted Gross Income Limit In 2020
For those who itemize, the CARES Act raises the max on the deductibility of an individual’s annual giving from 60% to 100% of AGI for a cash contribution. Any cash donations in excess of that limit can be carried forward for five years.
The Taxpayer Certainty and Disaster Tax Relief Act of 2020 extend some of the CARES Act provisions to entice individuals and businesses to give to charitable organizations during the 2021 tax year. This law typically extends through the end of 2021 for temporary tax changes by the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
IRS Rule Change in 2019 for Adjusted Gross Income Limit
The IRS raised the limit on charitable donations of cash from 50% to 60% of a taxpayer’s Adjusted Gross Income, according to IRS Publication 5307. The IRS maintains a limit on charitable gifts of cash of up to 60% of a taxpayer’s AGI. The current version of IRS Publication 526 should give additional details on AGI limits. Consult with a tax professional about claiming any deduction up to the 60% AGI limit.
Recent Federal Regulations on Charitable Donations and State and Local Tax Credits
Regulations that became law late in 2018 do not prevent taxpayers in Arizona from using the maximum credits that are allowed under the Arizona Charitable Tax Credit. Residents of Arizona are still allowed to use the Arizona Charitable Tax Credit, Credit for Contributions to Private School Tuition Organizations, Public School Tax Credit, and any other individual tax credit to support state-certified charities and receive a dollar for dollar state tax credits. Individual taxpayers must lower any corresponding federal tax deductions by these credits. Consult with your tax professional in regards to your specific tax situation.
IRS Forms to use for Documenting your Federal Tax Credits and Deductions
Use IRS Form 1040, Schedule A, to itemize your federal tax deductions. Record donations of property or other goods on IRS Form 8283 for Noncash Charitable Deductions.
Chapter 7 – Relevant Contact Information for the Tax Credit
Call your tax advisor first to discuss your specific situation.
Contact Information Provided in Arizona Form 321 and Arizona Form 352
The instructions in Arizona Form 321 and Arizona Form 352 have two phone numbers for any questions about the credits for donations to Qualifying Charitable Organizations and Qualifying Foster Care Charitable Organizations.
Arizona Department of Revenue Contact Information
Department of Revenue in Arizona provides a customer care line at 602-255-3381 and a general inquiries line at 602-255-3381. More contact information for the Arizona Department of Revenue can be found on the Department’s website.
Chapter 8 – Key Points for the Tax Credit
Arizona taxpayers have many options when utilizing state tax credits to lower their Arizona state tax liabilities. That being said, there is lots of information to absorb in order to utilize these credits, especially the Arizona Charitable Tax Credit. The key facts to know:
- The Arizona Charitable Tax Credit lowers an individual’s tax liability. This is different from tax deductions, which reduce taxable income.
- The Arizona Charitable Tax Credit allows any credits for contributions to Qualified Charitable Organizations (QCOs) that are not used against tax obligations for the most recent taxable year to be carried forward for a period of five consecutive years.
- For single taxpayers, married couples filing separately, or heads of household filers, the maximum credit allowed for donations to QCOs is $400; for joint taxpayers, the maximum credit for QCO contributions is $800.
- When qualifying for the Arizona Charitable Tax Credit, contributions have to be made to a state-certified QCO.
- The deadline is April 18, 2022, for making a donation and claiming a tax credit under the AZ Charitable Tax Credit for 2021.
- Besides the Arizona Charitable Tax Credit, Arizona offers many additional tax credits; taxpayers can combine these credits to reduce their state tax liability.
- Recent federal regulations limit how taxpayers can utilize state tax credits.
Let’s go!
It’s time to take your newfound knowledge, donate to the state-certified charitable organizations of your choice, and use Arizona state tax credits to control how a portion of your tax dollars are spent. When researching charitable organizations, please consider donating to Children’s Care Arizona; they are a 501(c)(3) organization qualified for the Arizona Charitable Tax Credit as a state-certified Qualifying Charitable Organization.
DISCLAIMER: This has been provided for informational purposes only. It is not intended to provide tax, accounting, or legal advice. No warranty or representation, either expressed or implied, is made by Children’s Care Arizona, nor does Children’s Care Arizona accepts any liability in regards to the information provided. You should consult with your tax professional prior to acting on the information in this guide.
