Tax credits have several types that have distinct functions and purposes. The three basic types are classified according to their function in filing the income tax return and how it can be returned to the taxpayer or not through the refund system. An Arizona tax credit can be non-refundable, refundable, and partially refundable. The non-refundable tax credit is classified into three categories which are the qualifying charitable organizations, qualifying foster care charitable organizations, and school tuition organizations.
Refundable tax credits are:
- The American Opportunity Tax credits
- Earned Income tax credits
- Child tax credits
- Premium tax credits
Partially refundable tax credits include the American opportunity tax credits. Each type of credit has its value of tax credits that can be earned, and there are requirements in claiming the Arizona tax credit for the prior year or the next tax season that the government sets to ease taxpayers’ burden in times when it is needed most.
So, what Arizona tax credit should you consider and how much can you claim from it?
Some of the five Arizona tax credits that can be availed before the April 15th deadline in filing the prior income tax return are:
- Qualified Charitable Organizations (QCOs): A qualified charitable organization is a non-profit organization and a non-refundable type of Arizona tax credit. The taxpayer can earn an Arizona tax credit by donating to a qualified Charitable organization. The donation should be made before the filing of the income tax return. The QCO that received your donation or contribution should provide a receipt of donation or contribution as proof of your donation for filing the income tax. Donating can provide a maximum $400 tax credit for the taxpayer filing individually or $800 for a married couple filing jointly.
- Qualifying Foster Care Charitable Organization: A QFCO is a non-profit organization and a non-refundable type of tax credit. The taxpayer can get an Arizona tax credit by donating to a qualifying foster care organization. The QCO that received your donation or contribution should provide a valid receipt of the donation or contribution as proof of the donation. The taxpayer can receive a maximum of $500 tax credit for filing individually or a maximum of $1,000 for a married couple filing jointly.
- School Tuition Organization: School tuition Organization is a non-refundable Arizona tax credit. Donating or contributing to a certified school tuition organization will give an Arizona tax credit to the prior tax year if you donate before the tax filing deadline, usually April 15th.
- Premium Tax Credit: It is a refundable tax credit designed to help taxpayers of low-income to moderate-income families. Those who enroll in marketplace insurance can have these Arizona tax credit benefits. If the cost of the credit is higher than the amount of the tax liability, the taxpayer will have a refund.
- Child Tax Credit: This Arizona tax credit type is considered a refundable tax credit, but there are requirements that the taxpayer should meet. The conditions in qualifying for child tax credits are the modified adjusted gross income amount of the taxpayer (MAGI); the filing type, whether individually, married couple filing jointly or as individual head of the family; and each qualifying child age bracket. The American Rescue Plan Act of 2021 changed the MAGI, and the tax credit amounts to ease the poverty of low-income families due to the COVID 19 pandemic.
The modified adjusted gross income (MAGI) thresholds for each taxpayer type is as follows:
- For a married couple filing income tax jointly or filing as a widow, the MAGI ceiling is $150,000.
- For a married couple filing individually, the MAGI threshold is $75,000.
- For a single head of the family, the threshold is $112,500.
The increased child tax credit is as follows:
- A child under six can give a tax credit of $3,600 per child.
- A child of age six to 17 can provide a credit of $3,000 per child.
The Rules and Guidelines for Filing Arizona Tax Credit for QCO and QFCO
There are organizations that deserve citations and commendations for their passion, hard work, and dedication or devotion to charity work without hindrance, even with the scarcity of material and financial allocation given them. To make sure that there is a systematic way of providing tax credits, the State of Arizona has guidelines that the state has defined for filing the tax credit on donations to these two types of charitable organizations which are:
- Arizona Tax Credits have separated claims for the two tax credits types which can be claimed, one for qualifying charitable organizations (QCO’s) donation and one claim for a qualifying foster care charitable organizations (QFCO’s) donation.
- Donations or contributions should be in cash form or in monetary funds to be applicable in claiming the Arizona tax credit. Material grants or donations in kind are not applicable for this tax credit.
- Credits for qualifying charitable organizations are organizations that provide basic needs to residents of Arizona, who have accepted temporary assistance for needy families of needy families benefits (TANF) benefits, or who are included in the low-income Arizona residents or residents with chronic illnesses or with disabilities that have insufficient funds or has no health insurance to pay for the needed services. The donor can claim a maximum $800 tax credit for a married couple filing jointly or $400 each for a single head of family or married couple filing individually. Use form 321 to claim to qualified charitable organizations tax credit and your QCO donation receipt.
- Credits for qualifying foster care charitable organizations (QFCOs) have basically the same vision and goals as qualifying charitable organizations (QCOs). Still, it must have a minimum of 200 individuals in its foster care system. The donor can claim a maximum of $1,000 tax credit for a married couple who are filing income tax jointly or a $500 tax credit for a single head of household or a married couple filing individually. To claim your tax credit from a QFCO, use form 352 and attach your QFCO donation receipt with your ITR form.
Suppose you have just married and do not have children. In that case, the best option is to donate to a qualified charitable organization (QCOs) and a qualified foster care charitable organization that can give a maximum tax credit of $1,800 for a married couple filing their state liabilities jointly or a maximum tax credit of $900 for filing individually.
You have contributed to the improvement of the quality of life in your community, and that is a big decision that makes you proud of yourself for doing good and yourself as well. You are in that boat, and doing something makes yourself float together with the community.