How the Tax Credit Actually Works
See the following practical examples with descriptions below to find out how the tax credit actually works with your state tax liability. Please consult your tax advisor for more information.
State Tax
Information
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The Brown's
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The Smith's
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Ms. Jones
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Mr. Johnson
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Status
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Married Couple
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Married Couple
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Single Taxpayer
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Single Taxpayer
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Tax Liability
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($1,100)
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($900)
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($825)
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($825)
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Withholdings Paid
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$1,250
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$900
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$825
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$0
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Net Tax Liability
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$150
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$0
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$0
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($825)
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Tax Credit Contribution
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$1000
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$1000
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$500
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$500
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Refund from AZ
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$1,150
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$900
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$500
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$0
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Taxes Due to AZ
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$0
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$0
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$0
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($325)
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Carry Forward
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$0
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$100
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$0
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$0
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Scenario 1 - The Brown's
The Brown's are a married couple who have a tax liability of $1,100. They have withheld $1,250 from their paychecks during the year so they should already be receiving a $150 tax refund. If they make a $1000 tax credit contribution, they have now paid in a total of $2,250 ($1,250 to AZ, $1000 to APESF), therefore they will receive a $1,150 tax refund when the file their taxes the following year.
Scenario 2 - The Smith's
The Smith's are a married couple with a tax liability of $900. They have withheld exactly $900 from their paychecks so they have fulfilled their tax obligation for the year. If they make a $1000 tax credit contribution to APESF (the maximum allowed for married taxpayers), they will only receive a $900 refund and they can carry forward $100 to the next tax year.
Scenario 3 - Ms. Jones
Ms. Jones is a single taxpayer who has a tax liability of $825. She has withheld exactly $825 from her paycheck therefore she has fulfilled her tax obligation for the year. If she makes a $500 tax credit contribution, she will receive a $500 refund.
Scenario 4 - Mr. Johnson
Mr. Johnson is a single taxpayer who has a tax liability of $825. He has paid nothing to the state during the year. If he makes a $500 tax credit contribution to APESF his tax liability will be $325 at the end of the year.
For this and all other matters affecting your tax planning, please contact your tax advisor for more information.
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