The State of Arizona opened an opportunity for its residents to have a choice where their tax credits go. A taxpayer can either give their tax credits as a contribution to a qualified charitable organization, a military (or veteran) support institution, public or private schools. One of the most popular choices among taxpayers is donating their tax credits to Certified School Tuition Organizations, widely known as the private school tax credit.
What is A Private School Tax Credit?
The Private School Tax Credit supports Arizona’s low to middle-income families. It gives them a chance to have their kids admitted to a private school within the state, where the fund helps them pay for their tuition. Hence, it is also known as the Credit for Contributions to School Tuition Organizations. Both under individual or joint filing, a taxpayer will donate to an Arizona private school of their choice that is qualified under the state tax program. Same with the principle of contributing your charity and tax benefits to a qualified charitable organization, you must engage with a certified school tuition organization, where your non-refundable contribution can be recognized as an Arizona tax credit.
The Private School Tax Credit funding from the contributions received will provide scholarships to students, giving them an opportunity to enroll in Arizona private schools without worrying about their tuition. What’s best with this tax credit type is that the donations can be from individual taxpayers and corporations.
Tax Credit for Individual Taxpayers
Two tax credits are available for individual taxpayers when donating to a Certified School Tuition Organization. Pretty much like how a qualified charitable organization works, the funding is used to support low to middle-income families, helping children with their schooling needs.
The first Private School Tax Credit opportunity for individual taxpayers is applicable in a similar process when donating your charity and tax benefits to your preferred qualified charitable organization. You will send your money to the Certified School Tuition Organization, and they will give you a receipt, which you can use when filing your taxes.
The second one is applicable when the taxpayer is a shareholder of an S corporation. This person can claim two separate tax credits – that is, if the S corporation is qualified to offer a corporate credit but can choose to pass the contribution to its individual shareholders’ tax accounts.
Note: An S corporation is called a “pass-through tax entity.” It means that if you are an individual shareholder under such corporations, you may deduct a portion of the company losses from their income tax (personal) then pay the taxes based on the company’s profit.
An individual taxpayer has various options in utilizing the Private School Tax Credit:
- Contribution To A Private School Tuition Organization
This Arizona tax credit is the original income tax credit offered to individual taxpayers at the same time donations to a qualified charitable organization were acknowledged for tax filing. You need to claim it using Arizona Form 323.
The credit allowed for singles, married filing separate taxes, and heads of households are $611 maximum, and the limit is at $1,221 for married couples having joint tax accounts for 2021 tax filing. For 2022 tax filing, the maximum amount for single filers increased to $623 and $1,245 for joint filers.
- Contribution To A Certified School Tuition Organization
This individual Arizona tax credit option is also called the switcher individual income tax credit or private school plus tax credit. It means that you can donate to a certified school tuition organization when you have already maxed out your donation to a private school tuition organization. You need to use Arizona Form 348 to file for this tax credit.
The maximum amount for single filers is $608 and $1,214 for joint filers for the 2021 tax year. By 2022, the maximum tax credit amount for single filers is $620, and married filers can donate $1,238 at most.
- Business Contribution To A School Tuition Organization by An S Corporation
This tax credit is particularly applicable only to individuals who are stockholders of an S corporation. They can claim a pro-rata amount of donation under the S corporation directly to a certified school tuition organization. The taxpayer must use Arizona Form 335-I to apply for this Private School Tax Credit.
- Business Contribution To A School Tuition Organization By An S Corporation, Specifically For Students With Disabilities or Displaced
This Arizona tax credit is typically the same as above but is more directed towards a specific classification. The taxpayer needs to use Arizona Form 341-I to apply for this tax credit.
Is There Tax Credit Available For Corporate Taxpayers?
Besides individual tax filing, Arizona also opened an opportunity for corporate entities to donate to certified school tuition organizations. Unlike contributing to a qualified charitable organization, contributions from corporations for private school tuition funding are acknowledged to be filled as tax credits.
However, corporate tax credits for low-income companies and the displaced/ disabled should undergo pre-approval from the Arizona Department of Revenue. This additional process is because of the statutory caps on accumulated tax credits amount permitted in a fiscal year.
If a corporation is keen on donating to a specific school, it must get in touch with a certified school organization to start its corporate credit donation pre-approval process. The school tuition organization will then submit the application for corporate donation credit to the Arizona Department of Revenue. Applications directly submitted by a corporation to the Arizona Department of Revenue are automatically not accepted.
A corporation can either give their contributions for:
- Corporate Tax Credit To School Tuition Organizations for Disabled or Displaced Students
An S corporation can support disabled or displaced students with their tuition through a school tuition organization through this category. They may coordinate with the qualified organization to process the corporate tax credit pre-approval. Shareholders, corporate partners, and unrelated exempt organizations under the S corporation may also check eligibility to claim this corporate tax credit.
The maximum amount for this Disabled/Disabled Corporate Tax Credit is $6,000,000.00 per year. The corporation must use Arizona Form 341 for its application.
- Low-Income Corporate Tax Credit To School Tuition Organizations
Like the process above, a corporation that wants to contribute to a certified school tuition organization and be acknowledged as low-income tax credit must get their application pre-approved through the organization. While most application conditions are the same, the maximum amount allowable for the Low-Income Corporate Tax Credit is $135,346,407.
Tax filing can be challenging, not to mention tedious and time-consuming, especially if you are unaware of the conditions and opportunities, such as what Arizona tax credits offer. Through your tax credits, Arizona offers to convert your contribution to a qualified charitable organization, private schools, public schools, low-income families, and military families. Tax credits, particularly the Private School Tax Credit, allow individuals, couples, and corporations to support student tuition to enroll or continue schooling in a private school through their tax credits and benefits.
Otherwise, you might also want to consider looking into donating your charity and tax benefits to a qualified charitable organization like Children’s Care Arizona. We are a registered QCO that helps low-income families with their child care and schooling needs. For more information on tax credits, you may get in touch with us through this LINK or call us at 480 795 3775.