2020 Arizona Tax Credit Limits
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.
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 your total state tax amount, the 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, 2021, in order for them to apply to the 2020 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 organizations 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. 2020 limits are quoted.
1. Arizona Credit for Donations Made to Qualifying Charitable Organizations (QCO)
Contribution amounts eligible for credit: $400 for single filers/ $800 for joint.
The Arizona Department of Revenue provides a list of qualifying charitable organizations. As the founder of a firm that focuses on issues around retirement and aging, Dana makes her charitable donation to the Area Agency on Aging in Phoenix each year. This credit is claimed using Form 321.
2. Qualified Foster Care Charitable Organization (QFCO)
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. This credit is claimed on Form 352.
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. This type of credit is claimed using Form 322.
4. Private School Credit
Contribution amounts eligible for credit: $593 limit for single filers/ $1,186 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 on Form 323.
If you are an owner of an S Corporation, ask your tax preparer about the credit for business contributions, which is claimed on Form 335-I.
5. Additional “PLUS” Private School Credit
Contribution amounts eligible for this additional credit: $590 for single filers or $1,179 for joint filers.
In 2012 Arizona Signed the Overflow/PLUS tax credit law, called the Switcher Individual Income Tax Credit, 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. 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. 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. The donation amount is often reached before year-end; if your check reaches the fund after it has reached the $1 million mark, your contribution will be returned to you.
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 are a married tax filer and normally pay about $4,000 in total Arizona state taxes. This year you decide to contribute to organizations eligible for the tax credit.
Let’s assume you write checks to four organizations that qualify for four different tax credits (the QCO Credit for $800, the QFCO for $1000, and the Public School Tax Credit for $400 and the Private School Credit for $1,186) for a total of $3,386.
You get a dollar-for-dollar credit against state taxes owed for $3,386. By donating to tax credit eligible organizations, now your total state tax liability equals $4,000 less the credit of $3,386, for $614 of remaining tax liability. Your total dollars paid remains $4,000 whether you use tax credits or not – it’s either $4,000 all paid to the state, or $3,386 paid to tax credit eligible organizations and $614 paid to the state. If you had already paid in the full $4,000 in state taxes during the year, you would get a refund for the $3,386.
Note – in the past, if you itemized deductions, you could also take a charitable deduction for some of these contributions, however IRS rule changes no longer allow this deduction if you received a corresponding state-level tax credit.
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.
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