What Is the Arizona Tax Credit Program?

For over twenty years, the State of Arizona has allowed Arizona residents with a state tax liability to redirect their tax dollars to causes and services for those in need.

Tax credit for gifts to Qualifying Charitable Organizations (QCO) in Arizona dates back to 1998 when it used to be called the “Working Poor Tax Credit.”

In 2012, this credit was expanded for organizations providing support to needy families receiving temporary assistance, low-income Arizonans, and children with chronic illnesses or physical disabilities.

The Arizona Tax Credit Program is now under the “Arizona Charitable Tax Credit” umbrella term, describing tax credits for gifts to both QCOs and Qualifying Foster Care Organizations (QFCO).

When it was first introduced, less than 1 percent of all eligible taxpayers in the state claimed the credit. That's only about 2,894 filers.

By 2016, that figure had risen to over 130,000 filers. In just that year, more than $52 million was directed to over 811 state-approved charities across Arizona.

If you’ve never claimed the Arizona Charitable Tax Credit, you are missing out on a free chance to decide where your tax dollars go!

Simply put, the Arizona tax program repays you, dollar for dollar, on the money you donate to qualifying Arizona charities.

More Taxpayer Control and Choice With Taxpayer Credit

The Arizona Charitable Tax Credit gives taxpayers more freedom in how their tax dollars are allocated.

For example, if a married and joint filer taxpayer makes an $800 donation to an eligible QCO and a second $1,000 gift to a QFCO, he or she can claim the maximum allowable credit for both of these contributions.

This means that the taxpayer redirects $1,800 of his or her state tax payment from the State’s general fund to the two charitable organizations of their choice.

This is the underlying benefit of the Arizona Charitable Tax Credit. Taxpayers direct tax dollars to charities of their choosing. Instead of the state taking control, individuals determine which organizations receive tax revenue. 

How Does the Arizona Tax Credit Work?

Arizona is one of few states that offer tax credits for charitable donations.

QCO is just one of the five categories of Arizona tax credit nonprofits. Because each one is separate, you could claim the maximum amount for all five categories.

That means that you can donate the maximum amount to a health education program, a foster care group, and your child’s school if you wanted.

Arizona Tax Credit Charities

The five categories for charitable Arizona state tax credits are:

Qualifying Charitable Organizations (QCO): QCOs like Esperanca Inc. cover hundreds of different Arizona-based charities. Food banks and other health-related programs fall under this category. The 2020 maximum limit for this category of donations is $400 for an individual or $800 for a couple filing jointly.

Qualifying Foster Care Charitable Organizations (QFCO): QFCOs represent organizations that primarily help residents in foster care. The 2020 cap for this category of donations is $500 for an individual or $1,000 for a couple filing jointly.

Public Schools: Arizona school tax credit allows you to claim credit for the fees you pay to your child’s school, including ones for extracurricular school activities. Both public and charter schools are included, and the 2020 cap for this category of donations is $200 for an individual or $400 for a couple filing jointly.

School Tuition Organization: This category lets you claim credit for scholarships and grant donations as long as they're not awarded to your child. The 2020 cap for these donations totals $ 1,183 for an individual or $2,365 for a couple filing jointly.

(Know that the School Tuition Organization and Certified School Tuition Organization are considered two different subcategories so credits have to be claimed separately.)

Military Family Relief Fund: This fund provides financial help for families with disabled veterans who sustained injuries during their service. The 2020 cap for these donations is $200 for an individual or $400 for a couple filing jointly. This fund has an annual cap of $1 million, meaning after $1 million has been donated for the year, subsequent donors can’t claim the tax credit.

Making the Arizona Charitable Tax Credit Work For You

You can find details on charitable tax credits at the Arizona Department of Revenue website. While there is a lot to read and some of the legal languages may sound complex, these credits are actually very easy to claim.

Making a charitable contribution and claiming the Arizona Charitable Tax Credit only takes a few steps.

1. Donate to a certified charitable organization, such as a 501(c)(3) organization like Esperanca Arizona (QCO 22188). Make sure to maintain a receipt for your donation so you can provide a copy for your tax returns.

2. Complete any relevant tax forms to claim one or more credits for your gift(s). This will either be Arizona Form 321 for donations to QCOs, Arizona Form 352 for donations QFCOs, or both.

3. Calculate your individual tax returns (e.g. Arizona Form 140, 140NR, 140PY, or 140X). Then subtract your tax credits from your tax liability to reduce your Arizona state tax balance. Make sure to include either Arizona Form 321, Arizona Form 352, or both with this return.

To put all this into perspective, if you owe $3000 in taxes but donate $400 to a qualifying charitable organization, his tax liability is reduced to $2600.

Do I Need to Donate the Maximum to Get the Credit?

No. In fact, most people don’t donate the full amount of the maximum tax credit for donations. But charities will accept all donations no matter the amount. 

There’s no minimum on the tax credit and we’re grateful for whatever you can give. Since you’ll get it back as a credit, there’s no reason not to!

And you don’t have to itemize your taxes to get the credit. Even if you take the standard deduction, you can still claim it and reduce your tax bill.

The easiest way to donate is by setting up a monthly giving plan. Donating $33 a month for a single donor equals $400 a year, all of which can be deducted when filing your taxes. 

Carrying It Over

Some people end up donating more than they owe in taxes. Don't worry, those deductions can be carried into the subsequent year.

If you donated $400 to Esperanca this year but you only owe $100, you can just deduct the other $300 from your taxes at any point within the next five years.

Are Charitable Contributions Deductible in Arizona?

The Arizona tax credit donation program differs from a traditional tax credit in several ways. 

A tax deduction reduces the amount of income you pay taxes on. If you earned $40,000 and donated $400 to Esperanca for Arizona Programs and $500 to a foster care organization, a tax deduction policy means your income is considered to be $39,100. With a 3% tax rate, you would owe $1,173 in taxes.

In Arizona, instead of reducing the amount of taxable income, the state charitable tax credit policy reduces your overall taxes.

If you earned $40,000, you would owe $1,200 in taxes with a 3% tax rate. But since you donated $400 to Esperanca Arizona Programs and $500 to a foster care organization, you can instead subtract that from the $1,200 tax bill and only owe $300 in taxes.

How Do You Do It?

Each charity has a numerical code that comes with the thank-you note and receipt you receive whenever you make a donation (Esperanca Arizona code is 22188).

When you enter the donation into Turbo Tax or hand over your files to an accountant to prepare your taxes, you’ll be asked for that numerical code. All you have to do is enter that code along with your donation.

If you’re filing on paper, download the Arizona tax credit application for each category from the Arizona Department of Revenue’s Tax Credits Forms page and send it in with your taxes. 

The Fine Print

Some stipulations still apply, however, as the Arizona tax credit only applies to money transfers only. You can claim the check that you write to Esperanca for Arizona programs, but not any toys, books, clothes, or other material donations.

Businesses can’t claim this particular credit either, only individuals and companies (though they can claim other credits).

Donations must be made to QCOs and QFCOs that have been certified by the state of Arizona. Gifts to non-certified charities are not eligible for the AZ Charitable Tax Credit.

IRS deadlines are different from Arizona’s state deadlines. In order for contributions to be deductible on federal tax returns, they must be made “before the close of your tax year.”

Keep this in mind when planning your charitable contributions and estimating your state and federal tax credits and deductions. You should consult with your accountant or other tax professional about your specific circumstances.

You can check the Arizona Department of Revenue’s tax credit page for detailed information about each tax credit.

Ready, Set, GO…

Every year, nearly $9 million worth of tax deductions is left unclaimed by individual taxpayers who donated to charities. You deserve to cash in.

Donate to Esperanca for its Arizona Programs or to any of the other Arizona organizations that are doing their part to support our state.

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