What is the Working Poor Tax Credit? The Working Poor Tax Credit is a dollar-for-dollar charitable contribution you can give to 501(c)(3) corporations (nonprofits). With Arizona’s Working Poor Tax Credit you can receive a dollar-for-dollar tax credit, up to $400*, on your state income taxes while helping homeless youth and adults — at no additional cost to you. You can either pay the State or you can donate to the Good Neighbor Alliance and inturn help those in your own community.

How do I qualify for Charitable Tax Credits? You must itemize and deduct your charitable contributions to establish a baseline year of giving. You must then increase your giving over your baseline year by making a subsequent $200 cash contribution to a qualifying charitable organization.

What is a baseline year? Your baseline year, by law, is 1996 if you itemized and deducted charitable contributions. If you did not itemize in 1996, then your baseline year is the first year after 1996 that you itemize and deduct. Your baseline amount is the total amount of charitable contributions deducted in your baseline year, including cash, non-cash and carryover contributions.

How do I benefit from increasing my contributions? Any contributions to a qualifying charitable organization over and above your baseline amount qualify for a dollar-for-dollar state income tax credit up to $200 (or $400 per couple) each year.

Must I continually increase my contributions each year from the previous year to be eligible to claim the credit? No. Once your baseline year and amount is established, it does not change.

What is the difference between a tax credit and a tax deduction? A tax credit is significantly more beneficial than a tax deduction.  A tax credit reduces your taxes, dollar-for-dollar. A tax deduction reduces the taxable income upon which your tax liability is calculated.

What is a “qualifying charitable organization?” A qualifying charitable organization is a tax exempt (501)(c)(3) organization or community action agency that allocates at least 50 percent of its budget to services that help welfare recipients or the working poor with their immediate basic needs.  Services, which must be provided and used in Arizona, may include food, clothing, shelter, cash, health care, child care, job placement and/or job training.

How do I know the organization I support qualifies for the credit under this program? Qualifying organizations are required to send the Department of Revenue a self-certification letter stating that they meet all qualifying criteria. The Department in turn publishes a list of self-certified organizations. To request a list or to see if an organization appears on the list, call the Department of Revenue in Phoenix at (602) 255-3381 or outside Phoenix, toll free, at (800) 342-4090. Or check the Web at www.revenue.state.az.us/brochure/welfare.htm.

Does the tax credit also apply to my federal income tax returns? No. The Charitable Tax Credit applies only on your Arizona State income tax.  However, you may be able to claim a federal tax deduction for the amount donated.

Can a business make a contribution and claim the tax credit? No. Only individual taxpayers may claim this tax credit.

Can Charitable Tax Credit dollars be refunded or can unused amounts be carried forward? Charitable Tax Credit dollars cannot be refunded.  They can only be used to reduce your state tax liability to zero. Any unused dollars may be carried forward for up to the next five taxable years.

Can I make contributions to more than one qualifying charitable organization? Yes, but the total tax credit allowed is still $200/Single or $400 for those filing jointly, regardless of the number of organizations you support.

Can I donate food, clothing or services to a qualifying charitable organization and claim the credit for those donations? No. Only cash contributions qualify for the Charitable Tax Credit.

Can my charitable donation be made through payroll deductions? Yes. You can make cash contributions through payroll deductions towards one or more qualifying charitable organizations.

How much can I donate to this tax credit? The limits are $200 per individual or $400 per couple. You should always consult with your tax advisor as well.