Arizona offers several tax credits for individuals paying state income tax. They include the Working Poor Tax Credit for donations to qualified charitable organizations, the Public School Tax Credit (including charter schools), and the Private School Tuition Tax Credit. The credits do not reduce your tax liability; rather they allow you to specify how your state income tax dollars are used. You are permitted to take advantage of any or all of these tax credits each year, which can equate to hundreds of your tax dollars being donated to the worthy charities and schools of your choice.
How does it work? It’s pretty simple.
You give money to the qualified organization – for example, $200 to the Salvation Army, for the working poor credit. Then you complete Arizona form 321, that transfers to line 26 on Form 140 and you get 100 percent credit against line 19 (as though you had paid through withholding or quarterly estimates).
If you do your own taxes, read through the Arizona instructions carefully. For the most part, you can look at your form 140 line 19 to determine the maximum credit. Keep in mind, you must pay taxes to receive the credit. In addition, your credits can not exceed what you pay. For example, if you only pay $300 in state income tax, you may only claim $300 in credits in the current year.
These credits are fairly simple to apply, however everyone’s situation is different, and the rules can and do change from year to year. Take the time to review and understand the credits and rules each year. (For example, there are now two private school credits; please read through carefully if you’re taking advantage of both private school credits).
Most qualified organizations do a good job of explaining the process, as well, so take a moment to explore their websites for information and instructions. You may also wish to consult with your tax advisor or financial planner for additional information and filing requirements of the individual tax credits.
For more information on the public school (including charter schools) and private school tuition tax credit donations, click this link to the Arizona Department of Revenue official site.
For more about the working poor tax credit, including a list of qualifying charitable organizations, click here.