House of
Representatives
SB 1151
tax credits; withholding tax reductions
Sponsors: Senator Martin, Senator Gould, Senator Harper et al
DPA |
Committee on Ways and Means |
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DPA |
Caucus and COW |
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x |
As Engrossed and As Passed the House |
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SB 1151 allows employers to reducing withholding tax amounts for employees who plan to make contributions to a public school, school tuition organization or qualifying charitable 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.
Qualifying Charitable Organizations
Taxpayers that donate to certain charitable organizations are eligible for a tax credit capped at $200 for an individual and $400 for married filing joint. The taxpayer is only eligible for a credit on any donations over and above the amount established in their baseline year. The baseline year is the first year after 1995 in which the taxpayer itemized charitable contributions. This baseline requirement will be eliminated if HB 2560 is passed.
Charities that qualify to receive creditable donations must be a tax-exempt 501(c)(3) charitable organization or a designated community action agency that receives community services block grant monies. The organization must spend at least 50% of its budget on services to Arizona residents who receive temporary assistance for needy families benefits (TANF) or who qualify as low income.
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, school tuition organizations and qualifying charitable organizations as defined in statute.
· 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, school tuition organization, or charitable 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 18, 2006
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