ARIZONA STATE SENATE
Forty-seventh Legislature, Second Regular Session
FACT SHEET FOR S.B. 1151
tax credits; withholding tax reductions
Purpose
Allows an employee to elect a reduced withholding by the amount of the tax credit for contributions to a school tuition organization and to a public school in support of extracurricular fees or character education programs.
Background
In 1997, the Arizona Legislature allowed two nonrefundable individual income tax credits in lieu of deductions of up to $200 for any fees paid by a taxpayer to a public school for extracurricular activities, or up to $500 to a private school tuition organization beginning in tax year 1998. Beginning with the 2001 tax year, married filing joint filers were able to donate up to $250 to public school activities and $625 to private school tuition organizations and receive a tax credit.
Laws 2005, Chapter 334 doubled the maximum tax credit amount for married couples filing a joint return for contributions to school tuition organizations and for contributions to public schools in support of extracurricular fees or character education programs phased in over a two-year period.
According to the Arizona Department of Revenue (DOR), there could be a negative fiscal impact to the state General Fund due to a one-time shift of revenue collections as a result of the withholding changes in FY 2006-2007 to FY 2007-2008.
Provisions
1. Allows employees to elect a reduced withholding by the amount of the tax credit for which the employee is eligible for contributions to a school tuition organization or contributions to a public school in support of extracurricular fees or character education programs.
2. Instructs the employer to reduce the withholding amount by the amount of the tax credit, prorate the withholding amount for the number of pay periods remaining in the employee’s taxable year after the employee elects to take a tax credit and notify the DOR.
3. Makes a technical change.
4. Becomes effective on the general effective date.
Prepared by Senate Research
January 17, 2006
SL/GC/ac