Arizona's Working Poor Tax Credit
Important information for Nonprofit Organizations; Arizona has a new certification process for qualifying charitable organizations.
Background
Individuals who submit income tax returns in Arizona may be able to obtain a tax credit for donations to nonprofit organizations that qualifying as organizations serving the “working poor.” (This is often called the “working poor tax credit.”) The credit can be up to $200 for individuals or head of household and up to $400 for married couples filing a joint return. This credit can reduce taxes for these tax filers more than a regular deduction for contributions to charitable nonprofits, because they may get a dollar-for-dollar reduction in taxes owed. Therefore, it is a popular way for nonprofits who serve the poor to incent donors to make contributions at the $200 to $400 level. In 2007, Arizona nonprofits received $8 million in donations that qualified for the working poor tax credit.
When an individual is claiming the working poor tax credit, she must verify that the organization to whom she made a contribution in the pertinent tax year was a “qualifying organization” under state law. The list of qualifying organizations is published on the website of the Arizona Department of Revenue (ADOR). In 2009, more than 800 organizations were on this list. The 2009 list is on the ADOR website. Individuals who are preparing their 2009 tax returns should use this list to verify contributions they made in the 2009 calendar year went to qualifying organizations. Those donations are not affected by any changes in 2010.
In the past, nonprofit organizations self-certified that they met the definition of those serving the “working poor” and prepared a simple certification to ADOR. They submitted their certification one time and were then retained on the qualifying list year after year. ADOR did not review or evaluate the applications from nonprofits. If a nonprofit self-certified that they met the statutory definition, ADOR placed them on the list.
In 2009, the Arizona Legislature changed the law to require that ADOR review the applications submitted by nonprofits to determine whether they meet the statutory requirements. Furthermore, they must re-certify on an annual basis. In the fall, the 800-plus nonprofits who were on the 2009 qualifying list began receiving letters from ADOR with instructions to apply as qualifying organizations. More than 400 of those organizations submitted applications to become qualifying organizations for the 2010 tax year. More than 300 have been approved. Some were sent letters from ADOR denying their application or requesting additional information from the organization.
Organizations who were denied, or whose applications are pending, still have the opportunity to become qualified by ADOR. Furthermore, nonprofits which did not apply, but which believe they should qualify, can still apply at any time for certification as a qualifying nonprofit in 2010. ADOR regularly reviews applications and updates the list of qualifying nonprofits on its website. The staff has prepared some tips for nonprofits to understand the process for responding to information from ADOR. Read the ADOR information for Charitable Organizations to be sure that you are taking advantage of your options to obtain certification as a qualifying organization.
Does Your Nonprofit Qualify?
You can review the current list of qualifying organizations to see if your nonprofit can advertise the working poor tax credit to your donors in 2010. If your nonprofit is not on the list, but it applied to ADOR, CLICK HERE to see the tips from the Alliance.
If your nonprofits is not on the list and you did not apply to ADOR, but you believe you would qualify, CLICK HERE for tips on submitting an application to ADOR.
Please note that, while this law is called a tax credit for the “working poor,” the law contains a specific definition of the services that qualify and the populations those services must be provided to in order to qualify. The populations that qualify may not be considered strictly as “working poor” by some readers. Therefore, do not assume your nonprofit does not qualify if you do not see the population you serve as “working poor.” Read the law carefully; your services may qualify. On the other hand, if you provide services to the working poor, do not assume that your organization qualified. Only certain services can qualify. Therefore, again, read the law carefully.