Tax credit donations for schools

FILE PHOTO -- The Williams Field band plays to rally support for their team, Friday, Sept. 28, 2012 in Gilbert. Band is one of the extracurricular activities in public schools that qualify for tax credit donations. [Jerry Burch/Special to Tribune]

Jerry Burch

Arizonans looking for ways to divert some of what they owe the state to other causes have a new option this year: foster care.

But they're going to have to act fast — as in before midnight Tuesday night. And because of the way the law is worded, they're going to have to be careful in how they give if they want to get the full benefit of the tax law.

Legislation approved earlier this year gives individuals a dollar-for-dollar tax credit of up to $400 for money donated to what are called “qualifying foster care organizations.” These are organizations that provide services to certain children who meet other qualifications.

The amount of the credit for couples is double that.

In essence, the credit is claimed on the state income tax form: Once a taxpayer computes the state taxes owed, the credit is applied, reducing that person's tax liability by that amount.

Put another way, the credit costs the taxpayer nothing: It's either paid to the charity or paid to the state.

But taxpayers who have given in the past to similar organizations need to be aware that money given to the foster care groups could reduce the credits they get for those other donations.

Sean Laux, lobbyist for the state Department of Revenue, said it's all in how the law is worded.

Most tax credits exist as separate statutes.

So, for example, someone can give to organizations that provide scholarships for students to attend private schools as well as donate to public schools for extracurricular activities and tutoring, claiming the maximum credit for both. That's $517 for the scholarship organizations and $200 for public schools for individuals.

Similarly, the same taxpayers also have been able to contribute to the existing program for “qualifying charitable organizations” and also take that $200 tax credit. There are separate credits for things like the Military Family Relief Fund.

All those are stackable up to each credit's limits.

But Laux said this one is different.

He said the foster care organizations exist as a subset of the charitable organizations.

Put simply, that means an individual cannot get both the $200 maximum credit available to charitable groups plus the new $400 credit for foster care groups. Both caps remain.

For example, consider a single taxpayer who donates $150 to a qualified charity and $400 to a qualified foster care organization.

That entire $150 for the qualified charity would be eligible for the dollar-for-dollar credit. But only $250 of the $400 given to the foster care group would qualify for the credit, what with the combined $400 limit on individuals.

But an individual who gives $400 to a qualified charity but none to a foster care organization gets to take only $200 in tax credits.

Both types of charities must spend at least 50 percent of their budget on services to Arizona residents who receive Temporary Assistance for Needy Family benefits, are below 150 percent of the federal poverty level, or who are chronically ill or physically disabled children.

To be a qualified foster care organization — and entitle donors to claim the larger credit — a group also must serve at least 200 foster children in Arizona and spend at least half of its funds on services to foster children in the state.

Lists of organizations that qualify for both are available from the Department of Revenue at

There's one other change in tax law this year which could mean more donations to both types of organizations.

In prior years, tax credits for charitable groups were available only to those who itemize deductions. This year the credits can be taken even by those who use the short form and take the standard deductions.

The legislation came as lawmakers approved more money for Child Protective Services.

That was largely for caseworkers to deal with reports of abuse and neglect. But there were also concerns about the welfare of foster children who technically are in the legal custody of the state.

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