Tax Credits

Doing Good For Others While Also Helping Yourself

by Renee Louzon-Benn, Director of Community Outreach, Sun Life Family Health Center Inc.

Did you know that Arizona tax law provides a credit for taxpayers who make contributions to qualifying charitable organizations? Did you know you could be making contributions to organizations like Sun Life Family Health Center, while also reducing your state tax liability?

According to the Arizona Department of Revenue (AZDOR), taxpayers filing as “single” and “head of household” status may claim a maximum credit of $400. Taxpayers filing as “married filing separate” may claim a maximum credit of $400. Taxpayers that file as “married filing joint” may claim a maximum credit of $800.

Tax Deduction? Tax Credit?
What’s the difference?

According to the IRS, tax credits and tax deductions can help reduce your overall income tax liability. While you might want to take advantage of as many of these as possible, it’s important to know that tax deductions and tax credits are not the same thing.

Tax deductions lower your taxable income, and they are equal to the percentage of your marginal tax bracket. For instance, if you are in the 25-percent tax bracket, an $800 deduction saves you $200 in tax (0.25 x $800 = $200). On the other hand, tax credits can help reduce your tax liability dollar-for-dollar. However they cannot reduce your income tax liability to less than zero. In other words, your gross income tax liability is the amount you are responsible for paying before any credits are applied. This means that an $800 tax credit saves you $800 in taxes.

A tax credit is always worth more than a dollar-equivalent tax deduction, because deductions are calculated using percentages.

To get a better idea of how tax credits work and whether or not you qualify, you need to know what is available to taxpayers in your situation, such as your filing status, age, employment and education. It is important to remember that just because you qualify for one type of tax credit does not mean that you qualify for the rest (IRS.gov). Talk to your tax preparer to see if you qualify and might want to take advantage of the tax credit for charitable organizations.

How a Charitable Organization Qualifies

A qualifying charitable organization is a charity that meets all of the following provisions:

  • Is exempt from federal income taxes under Section a 501(c)(3) or is a designated community action agency that receives community services block grant program monies pursuant to 42 U.S. Code Section 9901.
  • Provides services that meet immediate basic needs.
  • Serves Arizona residents who receive temporary assistance for needy families (Temporary Assistance for Needy Families) benefits, who are low-income residents whose household income is less than 150 percent of the federal poverty level or who have chronically ill or physically disabled children.
  • Spends at least 50 percent of its budget on qualified services to qualified Arizona residents.
  • Affirms that it will continue spending at least 50 percent of its budget on qualified services to qualified Arizona residents.

A charity must apply for and meet all requirements of the law to be considered a qualifying charitable organization. Approved charities’ names are listed on the Department of Revenue’s website.

How Tax Credits Help Others

At nonprofit organizations like Sun Life Family Health Center, every dollar counts. Health centers face the same financial pressures private health-care practices experience. Health centers often offer preventative programs for their patients that are not fully reimbursed by insurance, such as diabetes education, integrated oral health, integrated behavioral health and integrated clinical pharmacy services.

When you make a donation to Sun Life, you’re helping take care of your neighbors and improving the health of your community. Healthy communities are prosperous communities. By making a donation to a charitable organization, you are choosing where your tax dollars go and helping to impact your community. So this year, please do good, feel good and help yourself.

To learn more about the Arizona Charitable Tax Credit, and qualifying charitable organizations, log on to azdor.gov/tax-credits/contributions-qcos-and-qfcos.

To learn more about Sun Life Family Health Center or to make an online donation, visit sunlifefamilyhealth.org.