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How Does Prop 123 Affect Arizona Tax Credit and Private Schools

by | Feb 8, 2022 | Blog, Qualified Charitable Organization, Tax Credits

Arizona tax credit


Arizona proposition 123, also known as the Education Finance Amendment, is a constitutional amendment placed by the Arizona Legislature on May 16, 2016. It’s part of the long-running lawsuit over K-12 funding. The proposition aims to allocate $3.5 billion to K-12 education over the next ten years. Recently, the prop 123 has also been related to the Arizona tax credit.

Approximately $1.4 billion would come from the general fund, with an additional $2 billion coming from increased annual state trust land permanent fund distributions to education. Over the next decade, it would increase allocations from 2.5 percent to 6.9 percent of average fund value while shielding the State General Fund and the Permanent State School Fund from severe economic recessions.

Despite its approval, many citizens dislike it because it limits our future options and mainly because the costs include jeopardizing the State Land Trust and capping state school aid.


How does Prop 123 affect Arizona Tax Credit and Private Schools?

There are various effects that Prop 123 has on the Arizona Tax Credit, on private schools, and as well as on the Private School Tax Credit.


Arizona tax credit


Effects on Arizona Tax Credit

Arizona residents have the option of directing where their tax credits go. The tax benefits for donating to charity are made to a qualified charitable organization, any qualified organizations, or public or private schools which provide much-needed assistance. However, the general-fund spending on tax credits has reached a critical point. It is far higher than Prop 123 is expected to provide to schools each year. Ducey’s initial vision on Prop 123 was to abolish income taxes, which would also mean the end of tax credits.

Moreover, there would be instances encountered like fewer taxpayers would reconsider availing Arizona Tax Credit. Especially in the case of donating to public schools through a qualified charitable organization or any certified student tuition organizations since they would be dependent on an increase in the budget. However, there may be an increase in availing tax credits for private schools. Also, with the discussion of approving Prop 123, new tax credits programs are made to expand tax benefits opportunities, making it more complex.

Effects on Private Schools

Prop 123 is more advantageous to public or charter schools, which are the primary beneficiaries of the boost in education funding. What about the private schools, on the other hand? Due to the proposition, private schools are experiencing declining enrollment rates despite the increase of scholarship opportunities available from the donations given by the taxpayers to any qualified charitable organization or any student tuition organization that assists in private schools. Also, private schools are increasingly becoming charter schools.


Arizona tax credit

Effects on Private School Tax Credit

The Private School Tax Credit is one of the most popular alternatives among taxpayers when you want tax benefits for donating to charity. Arizonans with limited financial resources can enroll in a state-funded private school. It is also known as the School Tuition Contribution Credit. To avail of this tax credit opportunity, individuals, couples, and even corporations can contribute to any Arizona private school that qualifies for the state tax credit. Similarly, you must contact a registered school tuition organization or any qualified charitable organization that provides tax benefits for donating to charity in private schools for your non-refundable donation to be recognized as a tax credit. The Private School Tax Credit funds provide scholarships to children to attend Arizona private schools.

There’s also a new tax credit opportunity that when you give to a qualified charitable organization in Arizona, you may be eligible for a tax credit equal to the amount of your donation, also known as a dollar-for-dollar contribution. As we all know, private schools do not receive government funding, must charge students tuition, and may occasionally receive additional funding from grants or private donors. Private schools may be ineligible for Arizona tax credit because they cannot fund themselves through charitable contributions or taxes. Make sure that you can claim this new tax credit, only give your donations to a qualified charitable organization that provides school tuition assistance or any certified school tuition organization.

Arizona’s school donation tax credit provides four separate tax credits, two tax credits each for individuals and corporates. The first one is for preschool and K-12 students with disabilities to receive a unique individual credit. The second one is for Individuals to create Switcher credits for K-12 students who leave public school. The third option is to provide low-income students with corporate credit scholarships. Lastly, a disabled/displaced corporate scholarship is also available for foster children with disabilities. These four options given by Arizona provide numerous individual tax breaks to assist consumers in making contributions to any qualified charitable organization or any certified school tuition organization.

Arizona already has the most comprehensive scholarship program by private school tuition tax credit. Individual and couple tuition tax credits for private school tuition organizations are presently up to $1,067 and $2,134, respectively. These sums are nearly five times the public school tax credit limits.

Due to the increased funding allocated to public or chartered schools’ education caused by Prop 123, many individuals or companies take up Arizona’s school donation tax credit for private schools. We see that they would be able to claim more tax benefits if they donate to a certified school tuition organization that aims to provide tuition assistance to low and middle-income families.

Scholarships are the most sought-after financial assistance among many students. Individuals have assisted tens of thousands of low-income families and disabled children. Students from low-income families attend some of the best private schools in the country. Education is a source of hope for economically disadvantaged and disabled children. They require information, resources, and opportunities to assist their children in succeeding. Scholarships funded from the individual’s cash donation change the lives of every student and family who receives one. With Prop 123, there’s an increase in scholarship programs available. However, the number of scholarships awarded currently outnumbers the number of private students enrolled, indicating students are obtaining numerous scholarships. It means that there’s an unfit usage of contributions made through the Private School Tax Credit. Although receiving numerous scholarships is advantageous, there are still people who will need it more, even just one scholarship.

Although taxpayers enjoy the tax benefits when they donate to any qualified charitable organization or student tuition organization, they consider where their donation goes and who would benefit from it. Prop 123 affects the Arizona tax credit, allowing more opportunities for taxpayers. To avail of these tax benefits, make sure that you contribute to a certified student tuition organization or any qualified charitable organization.

Children’s Care Arizona is an approved qualified charitable organization that assists low-income children who attend DHS-licensed preschools, public schools, private schools, charter schools, or with child care/supervision expenses. For more information, visit their website.

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