This article is intended to give you information on some of the recent tax law changes passed by the Arizona Legislature. These changes are made to bring Arizona’s tax law into conformity with 2018’s Tax Cuts and Jobs Act enacted by the federal government.
The first change is actually a federal regulation changing the treatment of state tax credits. Many people pay some or all of their Arizona income tax by making charitable contributions to certain qualified charities, public or private schools, etc. In the past, these monies were treated by the federal government as charitable contribution on Schedule A of the federal 1040. Starting with the 2019 tax year, these monies are now to be treated as state and local taxes, or SALT. They are still federally deductible on schedule A but are subject to the $10,000 ceiling.
The Arizona standard deduction has had a couple of changes. For the filing status of single or married filing separate the standard deduction is $12,200 (it was $5,312 in 2018); head of household is $18,350 ($10,336 in 2018); and married filing joint is $24,400 ($10,336 in 2018). The standard deduction can be increased by 25% of any charitable contribution whether in money or property. Please note that as explained above, contributions made to use as tax credits are now considered tax paid and cannot be included here.
The dependent deduction of $2,300 per dependent was repealed and replaced with a dependent tax credit. The credit is $100 for each dependent under 17 years of age at the end of the tax year; $25 for each dependent that is at least 17 years of age at the end of the year. There are phase outs for this credit starting at federal adjusted gross income of $400,000 for married filing joint and $200,000 for all others.
The exemption line on the 2018 return has been changed in 2019 to “other exemptions.” Include on this line $2,300 for any dependent 65 years of age or older; $2,300 for stillbirth.
Personal exemptions were repealed ($2,200 to $6,600 in 2018).
The $5,000 subtraction for lottery winnings was repealed.
All federal and Arizona state and their political subdivision retirees were allowed a reduction of their taxable pension benefit of $2,500 per person in 2018. This remained unchanged with the exception of benefits received from service in the uniformed services of the United States. In these cases, the annual reduction is now $3,500. Note, the uniformed services of the United States consists of the armed forces (Army, Navy, Air Force, Marine Corps and the Coast Guard) and the commissioned Corps of the National Oceanic and Atmospheric Administration. It does not include reservists.
The tax brackets have changed. For single and married filing separate, the first $26,500 of taxable income is taxed at the rate of 2.59%, from $26,501 to $53,000 the tax rate is 3.34%, etc. For married filing joint and head of households, the first $53,000 of taxable income is taxed at 2.59%, from $53,001 through $106,000 the rate is 3.34%.
The Credit for Contributions to School Tuition Organizations maximum is now $569 for single, head of household and married filing separate ($555 in 2018) and $1,138 for married filing joint ($1,110 in 2018). This credit is claimed on Arizona Form 323. The additional credit claimed on Form 348 has also increased — $566 ($552 in 2018) and $1,131 ($1,103 in 2018).
Other common items had not changed, such as federally taxed Social Security and railroad retirement benefits are not taxed by Arizona, the $2,100 subtraction for filers 65 years old or older and the $1,500 subtraction for being blind, and the increased excise tax credit of $25 per person in the household up to $100.
Editor’s Note: Jim Graff is AARP Tax-Aide coordinator in conjunction with the Sun City Community Assistance Network.