Is It Time To Revisit Arizona’s Charitable Tax Credit Programs?

Now that the 2022 tax deadline has passed, I wonder if the time has come to revisit Arizona’s charitable tax credit programs.

Arizona has a variety of state tax credit programs, providing a direct offset to individual tax liability for donations made to worthy charitable organizations.  Every Arizona taxpayer can make donations to qualifying charities and take a dollar-for-dollar credit against their State income tax liability.  For most of us, this means that you can support great causes right here in your community at NO COST TO YOU!

I can attest to the fact that the tax credit program has changed the landscape for charities.  Services and programs have been created, and expanded, thanks to this opportunity to fund organizations that serve the greatest needs in our community.

There are two charitable credits available.  Married taxpayers can donate $800 per year to Qualifying Charitable Organizations (QFOs).  The annual limit for singles is $400.  These groups assist such vital social causes as homelessness, domestic violence, and food banks.  This means that YOU can provide food, clothing and shelter to those in our community in need, and it will cost you NOTHING!  Your donation reduces your state tax bill, so you receive the money back! 

A parallel credit exists for donations to Qualifying Foster Care Charitable Organizations (QFCOs).  This credit has annual limits of $1,000/$500.  Dollars donated through the tax credit have supported basic needs for our state’s foster population, as well as aging out resources for teens who will be on their own, but don’t have the supports that are needed to live independently.

You have the power to assist the most vulnerable populations in our State. These tax credits make it painless for your pocketbook, but will provide invaluable resources to charities who are doing the hard work every day.

So, why should we revisit the tax credit programs?  In 2013, when the foster care tax credit was signed into law by then Governor Jan Brewer, Arizona’s foster care system was in crisis.  There were 19,000 children in care, thousands of uninvestigated cases and the needs of children in the system were going unfulfilled.  We had to take action, and the State legislature courageously enacted a special tax credit for supporting foster care charities.

Over the past ten years, millions of dollars in tax credit donations have flowed into charities that do amazing work to help children in foster care.  Thanks to the credit, the number of children in Arizona’s foster care system is down, and numerous supports now exist to meet their needs.  So, what’s the problem?

Charities working with children in foster care have seen a huge increase in charitable donations due primarily to the tax credit.  Many of the largest foster care organizations have cash and investment balances that exceed their annual operating expenses, some in the millions or tens of millions of dollars.  A review of public records for Qualifying Foster Care Organizations (QFCO’s) indicate that only 51 charities qualify for the 2023 foster care tax credit.  Note that more than 1,000 organizations are eligible for QFO donations. 

I believe that the State has done its job, encouraging dollars to be donated to an area of greatest need, and programs and resources are now available to assist the children who need our help.  But should this massive inflow of funds be continued to such a small number of organizations?

As with every issue, pressing charity needs are changeable.  I would argue that in the early 2010s, foster care was one of the most important issues to address.  Thanks to the tax credit, and the limited number of charities that benefit from these dollars, I think the need in this arena has lessened.  I believe such causes as homelessness, mental health and other social services are as important today, and the emphasis should be spread to other vitally important society needs.

Perhaps an answer would be to put all qualifying charitable organizations in the same pool, and allow Arizona taxpayers to make their own decision as to how to better our community?  Continuing to divert millions of dollars in state tax funding to 51 charities only serves to build up dollars, which may not be fully utilized for the children they are intended to support.

I believe that the state charitable tax credit program is a wonderful opportunity for every taxpayer to support charities that do amazing work here in our community, but perhaps it is time to revisit how those dollars can make the biggest impact on those in need in Arizona.

I encourage every donor to do your research before donating, and to learn about the work being done by the charities you choose to support.  It is important to know where your dollars are going!

Dan Shufelt, the former CEO of Arizona Helping Hands, has been involved in the charity world as an executive and grant maker for many years.

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