Assigned to FIN                                                                                                   FOR CAUCUS & FLOOR ACTION

ARIZONA STATE SENATE

Forty-seventh Legislature, Second Regular Session

AMENDED

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 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 request a reduced withholding by the amount of the tax credit for which the employee represents to the employer that 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. Allows the employer to reduce the withholding amount by the amount of the tax credit and 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.

3. Makes a technical change.

4.  Becomes effective on the general effective date.

Amended by Committee

· Allows the employer to adjust the withholding on the request of the employee.

Senate Action

FIN                 1/19/06     DPA     9-0-0-0

Prepared by Senate Research

January 19, 2006

SL/GC/jas