If you are an Arizona taxpayer, filing your income tax return is essential for your yearly tasks. And as such, you should know about refunds, deductions, and the Arizona tax credit program. These tax opportunities may help decrease the amount you need to pay for your taxes, get the best refund, or lessen the tax types you are legally obligated to pay.

The Arizona tax credit is the most vital of these factors. In Arizona, using tax credits for contributing to a qualified charitable organization is a great way to direct where your tax money goes.

An Arizona tax credit has two types, refundable and non-refundable tax credits. Both types give you an opportunity to decrease your tax liabilities. Refundable tax credits are called such because the government returns a particular amount, the difference between your actual credit amount and the tax you must pay. For example, if the tax amount you need to pay is $800 and you are eligible for a $1,200 refundable tax credit, you can receive a $400 refund. You may consider having these tax benefits for donating to charity.

But, what if your tax credit was not returned, even when you have excess from what you owe?

Reasons Why You Did Not Get Your Tax Returned

Several reasons cause you to not get a refund or return from your tax credit when you have filed income tax returns:

Arizona Withholding Tax

Incorrect information in your W-2 form may lead to no refunds from your tax credits. Check the information for any errors. There are cases that you can receive multiple W-2s for multiple jobs or change jobs, or another company took over your company. An employer should withhold income tax whose compensation from services rendered within Arizona. The withholding tax is the percentage of the employee’s gross taxable wages. Federal U.S. code article 3401 defines the amount for the gross taxable wages, which is the same as that of Arizona income tax purposes.

The Internal Revenue Services (IRS) requires employers to report the wage and salary of their employees on a Form W-2. As an employee, the information should be checked for accuracy as this is extremely important when preparing the income tax return. The W-2 form is forwarded to the employee by the 31st of January for each year to prepare for income tax return filing. The W-2 has information from the employer about the employee’s earnings, tax withholding, benefits, withheld health insurance, health savings account, adoption and dependent care assistance, and others.

*Note: Be sure to check for errors on the W-2 form for misspelled names, incorrect social security numbers, wrong amounts, and other issues. Be sure to inform the employer and request a corrected copy.

Wrong W-4 Tax Withheld

The tax withheld by the employer from your monthly wages may be too small or too big, so the employee should annually review the withholding tax that the employer is taking from you. The W-4 form is filled up by the employee and submitted to the employer as a basis for computing or determining the withholding tax from your paycheck. Having a large refund each year means receiving less from your paycheck. If you have a significant tax liability each year, it may mean that tax withheld is not sufficient. The employer’s responsibility is to review and change the tax withheld each year so that tax liability or tax refund accumulation is a justifiable amount.

Non-Refundable Tax Credits

Some may think about tax credits that donating to a qualified charitable organization can get a refund but will not. A non-refundable tax credit can only bring your liabilities to zero but will not get you a refund. You can use any excess tax credit for the following income tax filing year for the tax liabilities. These organizations that fall under the non-refundable tax credits are listed under qualified charitable organizations for Arizona charitable tax credits are as follows:

• Qualified Charitable Organizations (QCOs): According to the definition of Arizona Department of Revenue (ADOR), qualified charitable organizations are those that deliver immediate essential needs to residents of Arizona who are low-income, uninsured, and needy families. Children or elders with chronic and aging physical disabilities and individuals who do not have sufficient capacity to care for themselves are included in their mission and goals. These qualified charitable organizations must spend at least half of their budget providing charitable services.

These QCOs can give a tax credit of a maximum of $400 for a taxpayer filing income tax individually or a maximum of $800 for a married couple filing income tax jointly. The donation must be made before the 15th of April to be counted for the prior tax year.

• Qualifying Foster Care Charitable Organizations (QFCOs): Donating to Qualifying Foster Care Charitable Organizations is also a non-refundable tax credit. The services these organizations provide are the same as that of qualifying charitable organizations (QCOs) but with children’s services in foster homes. When donating to QFCOs, the taxpayer can get a maximum $500 tax credit for filing individually or a full $1000 tax credit for a married couple filing jointly. The donation must be made before the day of income tax return filing on the 15th of April.

• Adoption Expense Credit: This is an expense for necessary adoption fees.

 

What Arizona Tax Credit Type Can Give You A Refund? 

There are tax credits that can give you a refund if it is more than the tax liability. It means that it can zero out the tax liability and provide you a refund, unlike a non-refundable tax credit which can only set the tax liability to zero. Still, the excess can be used for the following income tax return filing year. There are tax credits with non-refundable portions, and some portions are refundable. Refundable tax credits are as follows:

• American Opportunity Tax Credit: The AOTC or American Opportunity Tax Credit is for a qualified amount paid for a qualified learner for the initial four years of higher education. Higher education means pursuing a degree or advanced educational credential. The taxpayer can get a yearly tax credit of a maximum of $2,500 for each eligible student. If the tax credit gets the tax liability to zero, the refund would be 40 percent of the excess amount, up to a maximum of $1000. Other guidelines for the student to follow to claim this tax credit relate to the execution of pursuing the education and non-conviction of a drug felony at the end of the tax year.

 

 

• Earned Income Tax Credits: This credit applies to moderate to low-income taxpayers. What are examples of Earned Income Tax Credits (EITC)?
  • Wages, salaries, tips where federal income taxes are withheld on the W-2 form, box 1.
  • Money made from self-employment
  • Benefits from a union strike
  • Certain Disability benefits
  • Income from work where your company or employer did not withhold tax

• Child Tax Credit: It is available to families with qualifying children under 19 years of age. The additional child tax credit may offer a tax refund.

Takeaway Thought

Understanding the difference between a refundable and non-refundable tax credit will let you know in advance if you can get your paid taxes returned or not. Refundable tax credits include the American Opportunity Tax Credit, EITC, and Child Tax Credit.

On the other hand, the best non-refundable tax credit you can look into is to have your tax benefits for donating to charity through a qualified charitable organization. If you are interested in donating your tax liabilities to low-income families, check out Children’s Care Arizona, a long-standing qualified charitable organization, assisting families with children in their supervision, child care, and schooling needs. For more information, email us at support@childrenscareaz.org or speak with our representative by calling (480) 795-3775.