Your donations are a wonderful way to redirect your tax dollars while benefiting these local organizations.

Arizona's 2020 Charitable Tax Credits

Jennifer Ward

Arizona’s tax credits allow taxpayers to redirect their tax dollars for charitable giving. These tax credits reduce your Arizona income tax liability dollar for dollar. The credit limits depend on marital status, with limits for single taxpayers, heads of household (HOH) and married filing separate (MFS), half of those for married taxpayers who file a joint return. This article will focus solely on the tax credits for individuals.

Qualifying Charitable Organizations (QCOs) (AZ Form 321)

Taxpayers who contribute to qualifying charitable organizations (QCOs) get a credit of up to $400 for single, heads of household and married filing separate filers and $800 for married filing joint filers. This includes organizations providing immediate basic needs to residents of Arizona who receive temporary assistance for needy families benefits, are low income residents of Arizona, or are individuals who have a chronic illness or physical disability. The link for the 2020 list of qualifying charities is https://azdor.gov/sites/default/files/media/CREDITS_2020_qco.pdf This list includes the unique five (5) digit code assigned to each organization by the Arizona Department of Revenue that needs to be reported on Form 321. Contributions to QCOs made between January 1, 2021 and April 15, 2021 can be claimed either on your 2020 or 2021 Arizona tax return.

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Public Schools (AZ Form 322)

Taxpayers who make contributions or pay fees directly to an Arizona public school or charter school for extracurricular activities or character education programs receive a credit of up to $200 for single, heads of household and married filing separate filers and $400 for married filing joint filers. Extracurricular activities include field trips, use of uniforms and/or equipment for band, sports, or science. Fees paid for your child to participate in a particular activity qualify for the credit. You do not need to have a child in school to claim the credit. The check should be payable to the individual school. The credit for fees or donations to public schools made between January 1, 2021 and April 15, 2021 can be claimed either on your 2020 or 2021 Arizona tax return. The Arizona Department of Revenue now requires taxpayers to report the school’s County Code, Type Code, and District Code & Site Number on Form 322 which is filed with the Arizona income tax return. The link for the list of these items is https://azdor.gov/sites/default/files/media/PUBLICATION_ADESchoolListing.pdf.

Private School Tuition Organization (AZ Form 323) PLUS “Switcher” Tax Credit (AZ Form 348)

There are two private school tuition tax credits available to taxpayers for individual contributions to School Tuition Organizations which provide scholarships for students enrolled in Arizona private elementary and high schools. These maximums are summarized in the table below. Taxpayers who donate the maximum amount allowed on the Credit for Contributions to Private School Tuition Organizations (Form 323) may make an additional donation for Private Learning Uplifting Students (PLUS) and claim this additional credit referred to as the “Switcher” credit.

Filing Status Original Maximum Credit Form 323 PLUS Switcher Maximum Credit Form 348  Combined Total
Single, HOH, MFS $593 $590 $1,183
Married Filing Joint $1,186 $1,179 $2,365

A contribution will not qualify for the credit if you designate the donation for the direct benefit of your dependent; designate a student beneficiary as a condition of your contribution to the organization, or if you agree with another person to designate each other’s contribution to the tuition organization for the direct benefit of each other’s dependent. You can, however, designate your contribution to benefit a relative or any other student if they are not your dependent.

Before making your contribution, make sure that the organization is one that has been certified as qualifying for this credit. The link for the 2020 list of qualifying Arizona School Tuition Organizations is https://azdor.gov/sites/default/files/REPORTS_sto-i-list.pdf. Contributions to private school tuition organizations made between January 1, 2021 and April 15, 2021 can be claimed as a credit on your 2020 or 2021 Arizona tax return.

Private School Tuition Credits Passed Through to Individual Shareholders (AZ Form 335-I and/or 341-I)

If an S Corporation contributes to a qualified school tuition organization, the S corporation can elect to pass through the credits to its individual shareholders. The individual shareholder’s pro rata share of the available credit for the taxable year is reported to them on AZ Form 335-S and/or 341-S. These credits may be claimed even if the taxpayer claimed the maximum amounts allowed under the two individual private school tuition credits and are not subject to the limitations under the two individual private school tuition credits summarized above.

Arizona Military Family Relief Fund (AZ Form 340)

Taxpayers who make contributions to the Arizona Military Family Relief Fund (MFRF) receive a credit of up to $200 for single, heads of household and married filing separate filers and $400 for married filing joint filers. The MFRF provides financial assistance to families of currently deployed service members and pre-9/11 and post-9/11 military and veteran families for hardships caused by the service member’s deployment to a combat zone. Donations to this fund are capped at $1,000,000 annually, so it is best to contribute early in the year to obtain the credit. As of this writing, the fund has reached its limit for online donations and is still accepting mailed-in-checks for the time being. Once the cap is reached, excess contributions will be returned. Make sure you have a receipt from Arizona Department of Veterans’ Services indicating your contribution qualifies for the credit before claiming this credit on your 2020 Arizona return.

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Qualifying Foster Care Charitable Organizations (QFCOs) (AZ Form 352)

A second Arizona tax credit up to $500 for single, heads of household and married filing separate filers and $1,000 for married filing joint filers is available for taxpayers who make contributions to Qualifying Foster Care Charitable Organizations (QFCOs). A qualifying foster care charitable organization includes organizations who meet similar criteria to QCOs and provide immediate basic needs to at least 200 qualifying individuals in the foster care system. The link for the 2020 list of qualifying foster charities is https://azdor.gov/sites/default/files/media/CREDITS_2020_qfco.pdf. This list also includes the unique five (5) digit code assigned to each organization by the Arizona Department of Revenue that needs to be reported on Form 352. Contributions to QFCOs made between January 1, 2021 and April 15, 2021 can be claimed as a credit on your 2020 or 2021 Arizona tax return.

Tax Planning with Arizona Credits

Unfortunately, the somewhat new tax laws no longer allow Arizona taxpayers to deduct Arizona tax credits as charitable contributions on Federal Schedule A. However, the Arizona tax credits are still a great way for you to reduce your Arizona state taxes dollar for dollar. Moreover, with the doubling of the standard deduction, many taxpayers no longer itemize. Taxpayers who do not have enough to itemize but are still charitably inclined can claim a credit for these contributions on their Arizona income tax return. Lastly, other than the Arizona Military Relief Fund, taxpayers have the option of designating 2021 contributions made on or before the April 15, 2021 due date to their 2020 tax returns to lower 2020 taxes.

Concluding Thoughts

The pandemic has caused a greater need for charitable assistance than ever before. Your donations are a wonderful way to redirect your tax dollars while benefiting these local organizations. Before making your donations, double check to make sure the organization or charity qualifies for one of the Arizona credits.

Jennifer Ward is a Senior Manager in the Tax Department.  You can reach her at JenniferW@hhcpa.com or (480) 839-4900.