As Arizona continues to be a national leader in providing parents with meaningful educational choices, we all have a new opportunity to contribute to the scholarship tax credit program, which provides money for students to attend private schools chosen by their parents.  Every year, the program gives scholarships to around 25,000 kids, but many families are still waiting and hoping that this will be the year that they can choose the best school for them. 

This year, the Legislature passed and Governor Brewer signed a new tax credit specifically designed to help get these families off the waiting lists.  The credit is called the overflow or PLUS (Private Learning Uplifting Students) credit, and it is in effect right now.  This credit is in addition to the existing individual scholarship tax credit.  Here’s what you need to know to contribute:

  1. You must contribute the maximum amount under the existing individual scholarship tax credit before becoming eligible for the overflow/PLUS credit.  Currently for 2012, the maximum original credit is $503 for individuals and $1006 for married couples filing jointly.  With the overflow/PLUS credit, individuals can receive a tax credit for an additional $500 donation, and married couples can receive credit for an additional $1000 donation.  In total, an individual is eligible for $1003 in tax credits for donations to school tuition organizations, and a married couple is eligible for $2006.

    Because you must first satisfy the amount of the original credit before participating in the overflow/PLUS credit, the school tuition organization to which you donate will likely ask you whether you have already donated the maximum under the original individual credit for the applicable tax year.

    There’s no reason not to donate – even if you don’t have enough tax liability to take the combined total credit, you can still give any amount up to the total allowed.  Of course, you can always give more, too – you’ll only receive the tax credit for the amount allowed, but you can help even more kids with your donation!

  1. You may write one check for your donation, but the individual credit and the overflow/PLUS credit will be separate items on your state tax return.  The Department of Revenue refers to the overflow/PLUS credit as the “switcher individual tax credit.”
  1. You must donate to a certified school tuition organization (“STO”).   The list of certified STOs is available here.  CAP recommends Arizona Christian School Tuition Organization or TOPS for Kids.
  1. Both the original individual scholarship tax credit and the overflow/PLUS credit allow you to donate until April 15 of the following year and have the credit apply to your previous year’s taxes.  This allows you to determine your tax liability before donating, which will be especially helpful for those who wish to participate in the overflow/PLUS credit.  So, a taxpayer may donate in March 2013, but receive the credit on his 2012 tax return.

    Be sure to keep careful records and consult a tax professional for help if needed – one issue in particular to watch out for is that the extra time to donate only applies for the purposes of your state taxes, not your federal taxes.  So, a donation in January 2013 only applies to 2013 for federal tax purposes, but may apply to your state taxes for 2012 or 2013.  Again, please consult a tax professional for advice if you have any confusion on this or any other point.

  1. This information applies only to individual taxpayers, not businesses.  However, businesses can contribute and receive tax credits through two separate programs – the corporate scholarship program for low income students and Lexie’s Law for students with special needs.  For more information on these programs, check out CAP’s Policy Page on Arizona’s Tuition Tax Credit Program.

The scholarship tax credit program is a great (and painless!) way to make a difference in children’s lives by empowering parents to choose the schools that they believe are the right fit for their families.

This post summarizes a complex area of law and is not specific legal or tax advice for any person. Consult an attorney or tax professional if you have questions about your specific situation.


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