House of
Representatives
SB 1151
tax credits; withholding tax reductions
Sponsors: Senator Martin, Senator Gould, Senator Harper et al
SB 1151 allows employers to reducing withholding tax amounts for employees who plan to make contributions to a public school or school tuition organization and that would qualify for the corresponding individual income tax credit.
History
Public School Extracurricular Activity Fees
A taxpayer whose filing status is single or head of household may take an individual income tax credit up to $200 per year for contributions made to a public school for extracurricular activities and character education programs. Married couples filing joint may take an individual income tax credit up to $400.
School Tuition Organizations
A taxpayer whose filing status is single or head of household may take an individual income tax credit up to $500 per year for donations to a non-governmental primary or secondary school tuition organization that allocates at least 90% of its annual revenue to educational scholarships or tuition grants. Married couples filing joint may take an individual income tax credit up to $1000.
Withholding Tax
To simplify payment of the individual income tax, a portion of the tax is paid through a system of withholding. Under Arizona law, a percentage of each employee’s federal withholding is deducted and withheld by the employer for state income tax purposes at the time wages are paid. If the employee’s annual wage is less than $15,000, he can elect to withhold 0, 10, 19, 23, 25, 31, or 37 percent of federal withholding. If the employee’s annual wage is $15,000 or more, he can elect to withhold 0, 19, 23, 25, 31, or 37 percent of federal withholding. A taxpayer may only claim 0% if they had no state tax liability in the prior taxable year and expect to have no state tax liability for the current taxable year.
SB 1151 would give employees the option to request a reduced withholding amount and allow the employer to reduce the withholding by the amount of the individual income tax credit to public schools or school tuition organizations. A reduction in a taxpayer’s withholding amount does not reduce the taxpayer’s state tax liability. 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 from FY2006-2007 to FY 2007-2008.
Provisions
· Beginning in 2007, allows an employer the option to reduce the withholding amount by the amount of the individual income tax credit for donations to public schools and school tuition organizations.
· Requires the employee to request that the employer reduce the withholding amount. The employee request to reduce withholding must be in writing and contain the name and address of the school receiving the donation.
· Requires the employer to make the donation to the public school or school tuition organization on behalf of the employee.
· Defines any fraudulent appropriations on the part of the employer as a class 4 felony.
· Stipulates that the withholding amount may be reduced by the amount of credit that the employee would qualify for and be entitled to, but that the withholding amount may not go below zero and will be prorated according to the number of pay periods remaining in the taxable year.
· Requires the employer to give a statement at the end of each calendar year to the employee and the DOR that provides the amount withheld and paid on behalf of the employee during that year.
· Makes technical and conforming changes.
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Forty-seventh Legislature
Second Regular Session 2 April 3, 2006
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