Payroll Withholding

Arizona Withholding Tax Reduction

Donate through payroll withholding

As of January 1, 2010 the Arizona withholding tax reduction law A.R.S. 43-401 now allows individuals to redirect a portion or all of their payroll tax withholding amount in order to make a contribution to a School Tuition Organization (YES Fund for Kids), public school or other charitable organization. This is great news for taxpayers. Now you can “take the credit” to support school choice without having to provide money up front or in one large sum.

Donations made by an individual to private school tuition organizations can be made through a deduction from withholding, where the employer takes part of that individual’s withholding and sends it to the designated STO, such as YES Fund for Kids. Individual income tax payers authorize their employer to reduce their state withholding tax amount in order to make donations to a school tuition organization like YES Fund for Kids. Private school tuition tax credit donations can be sent to YES Fund for Kids by the employer weekly, monthly, or quarterly (at the employers discretion). This option changes the order in which the taxpayers tax credit donations(s) and their state taxes are collected and paid should one choose to use this program. Check with your employer to see if this option will work for you.

Employee Information

• The primary advantage of using this option for you as an employee is that it allows you to make your donation without having to provide the money up front or in one large lump sum.
• Reducing your tax withholding amount does not change your state tax liability. It simply means that you are paying taxes to YES Fund for Kids directly, rather than making a contribution and receiving it back as a credit the following year.
• You are responsible for requestion this change from your employer. Participation is completely voluntary on their part. YES Fund for Kids will help facilitate the process by providing the necessary forms for you and your employer and answer as many questions as we can.
• Payments will typically be made quarterly by your employer and will be accepted by the payroll date, rather that the postmark date. In accordane with the law, employers are allowed to send payments within 15 days after end of each calendar quarter.
• The portion contributed to YES Fund for Kids during each pay period cannot exceed the total amount of state tax withholding allocated for that pay period. It is important for you to clearly communicate how much and in what order contributions should be held if you are taking multiple state tax credits.
• We recommend that you consult your tax advisor regarding your expected state tax liability, withholding and anticipated contribution amount. The maximum credit for married taxpayers in 2019 is $2,269 and $1,135 for single taxpayers. If your total contribution exceeds your state tax liability for a given year, the excess amount may be rolled over and claimed on the following year’s taxes for up to 5 years.
• You may make a separate contribution to YES Fund for Kids if the amount of withholding for YES Fund for Kids does not exactly equal the total amount you wanted to give.

Employer Information

• The primary advantage to you as an employer for providing this option is that it is a benefit to your employees at minimal cost to you.
• Participation is voluntary on the employer’s part. YES Fund for Kids will help facilitate this process the best we can and we will be happy to answer any questions you may have.
• Employee communication regarding this withholding reduction is confidential information.
• Employers will be required to make quarterly payments to YES Fund for Kids on the employee’s behalf using the Quarterly Payment of Reduced Withholding for Tax Credits Form A1-QTC. You may also provide an Arizona Charitible Withholding Form A1-C to each participating employee and the Arizona Department of Revenue(now optional) indicating the total amount contributed through withholding reductions for the tax year, or upon that employee leaving the company. YES Fund for Kids will also send a tax receipt to each employee upon receipt of the quarterly payment.

Process

1. Check with your employer regarding participation.
2. Fill out the Payroll Withholding Deduction Form(currently being updated) and submit it to YES Fund for Kids.
3. Fill out the Arizona Form A-1C and submit it to the payroll department of your employer.
4. Participating employers will make quarterly payments to YES Fund for Kids using Arizona Form A1-QTC.
5. YES Fund for Kids will then send you a tax receipt for the amount of your tax credit through payroll contributions.

Resources

• House Bill 2287 Tax credits and withholding tax reduction