2016 Arizona Tax Credit Limits

DanaTaxCreditBlogUpdated 10/8/2016

The Arizona State Tax Credit program allows you to make a donation to an eligible organization and receive a dollar-for-dollar credit against Arizona state taxes owed. These donations count as charitable contributions and may be deducted on your federal return if you itemize your deductions.

Donating to tax credit eligible organizations will most likely leave you in a tax neutral situation – meaning you’ll pay about the same total amount whether you use the tax credits or just pay the tax. But by donating you get a say in how the money is spent by choosing which of the tax credit eligible organizations you contribute to.

You can contribute up to the amount of your expected Arizona tax liability. If you contribute more than what you owe in state taxes, then credits can be carried forward five years, so not to worry if you end up with more credits than taxes. In general, you must make your tax credit donations by April 15, 2017, in order for them to apply to the 2016 year. You can find additional information on the Arizona Dept of Revenue state tax credit page.

How Do I Make a Tax Credit Donation?

Most organizations provide a form or instructions on their website on how to donate. Some organizations allow you to donate by credit card online. Others require you to print a form and mail it in with a check. Most will mail you a receipt or letter that verifies your donation amount.

Below you’ll find links to information and donation pages for six different AZ eligible tax credit options. 2016 limits are quoted.

1. The Arizona Military Family Relief Fund Credit

Contribution amounts eligible for credit: $200 for single filers/ $400 for joint.

Contribute by going to the Arizona Military Family Relief Fund website. At the bottom of the page you’ll find a link you can use to download the donation form. You will have to mail a check with the printed form. This donation must be made by December 31, and the fund can only accept a total of $1 million in donations, so once that limit is reached, any more donations received are returned.

2. Arizona Charitable (Working Poor Tax Credit)

Contribution amounts eligible for credit: $400 for single filers/ $800 for joint.

The Arizona department of revenues provides a list of qualifying charitable organizations. As Sensible Money is focused on retirement planning, I (Dana) make my charitable donation to the Area Agency on Aging in Phoenix each year.

3. Public School Credit

Contribution amounts eligible for credit: $200 for single filers/ $400 for joint.

You can find additional information about this program from the AZ Dept of Revenue School Tax Credit page. Below, we’ve provided links to the Scottsdale and Mesa school districts. The Arizona Department of Education also provides a list of links to all AZ schools. If you know what school you would like to donate to, find the school’s website, as it will likely provide you with information and a form to use to make a donation.

Unified School Districts (Scottsdale)

Unified School Districts (Mesa)

4. Private School Credit

Contribution amounts eligible for credit: $545 limit for single filers/ $1,090 limit for married filers.

You can find additional information about this program from the Arizona Department of Revenue (AZDOR). AZDOR also has a list of tuition organizations certified to receive donations for this credit. This credit is claimed with Form 323.

5. Additional “PLUS” Private School Credit

Contribution amounts eligible for this additional credit: $542 for single filers or $1,083 for joint filers.

In 2012 Arizona Signed the Overflow/PLUS tax credit law, allowing donors to receive credit for contributions over and above the original private school tax credit that can be claimed on Form 323. This additional credit is claimed on Form 348.

6. Foster Care Charitable Organization

Contribution amounts eligible for credit: $500 for single filers/ $1,000 for joint filers.

The Arizona Department of Revenue provides an updated list of qualifying foster care organizations that are eligible for this credit.

Keeping Records

After you contribute, don’t forget to print and save the confirmation page to provide to your tax preparer and/or keep for your tax records.

How Tax Credits Work

Assume you normally pay about $3,000 in total Arizona state taxes. This year you decide to contribute to organizations eligible for the tax credit.

Let’s assume you make four tax credits (the Arizona Military Relief Fund Credit for $400, the Working Poor Tax Credit for $800, the Public School Tax Credit for $400 and the Private School Credit for $1,090) for a total of $2,690.

You get a dollar for dollar credit against state taxes owed for $2,690. By donating to tax credit eligible organizations, now your total state taxes owed is $3,000 less the credit of $2,690, for $310 of remaining tax liability. Your total dollars paid out remains $3,000 whether you use tax credits or not – it’s either $3,000 all paid to the state, or $2,690 paid to tax credit eligible organizations and $310 paid to the state. If you had already paid in the full $3,000 in state taxes during the year, you would get a refund for the $2,690.

If you itemize your deductions, you also get to take a federal deduction as a contribution to a charitable organization for $2,690. This saves you $627 in federal tax at the 25% rate, or $403 at the 15% rate. (Note: if you had paid the state tax of $2,690 rather than contributing to the tax credit programs, the $2,690 would be part of your itemized deductions anyway as state taxes paid qualify as an itemized deduction, so this deduction may not be in excess of what you would get anyway.)

Your tax professional can answer additional questions about tax credits and the forms you need to file with your tax return to get the credit.