Arizona Tax Credits: New Employer Withholding Law

By Mike McCann, CFP, AIF

 

As of January 1, 2010, Arizona taxpayers can now authorize their employers to reduce their state tax withholdings for certain tax credit donations. This does not reduce your tax liability, but it does allow you to make donations through your withholdings rather than out of pocket.

 

Tax credits impacted by the new law include the Working Poor Tax Credit for donations to qualified charitable organizations, the Extracurricular Activities Tax Credit for donations to public schools (including charter schools), and the Arizona Scholarship Fund for private school tuition tax credit donations.

 

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.

Under the new law, any taxpayer who wants to make a tax credit donation through their employer payroll withholding plan can do so by completing section two of the Arizona Department of Revenue Form A1-C and submitting it to their employer. If the employer chooses to participate in the program, it will set aside the normally withheld amount from each pay period. Then, rather than sending the money to the state department of revenue, the employer will send it to each of the organizations the employee has listed in section two.

At calendar year-end, the employer will provide a statement to the employee and the state detailing the transactions. The charitable organization should also issue a receipt for your tax records.

 

For more information on the school 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 organizations, click here.

 

You may also wish to consult with your tax advisor or financial planner for additional information and filing requirements of the individual tax credits.