There have been a number of articles and letters to the editor about the Credit For Kids. Basically, the information presented says that if you donate to and/or pay a fee for an extracurricular activity at a public school, you can take a credit on your Arizona income tax return equal to the amount paid, up to $200. This reduces your Arizona income tax liability by the amount of the donation, so you have no out-of-pocket cost.
What has not been said is that the amount paid that qualifies for the "Credit for Kids" is a donation to the school, rather than a fee, it may be claimed as a charitable contribution on your federal return (but not on the state return) if you itemize. Thus a $200 contribution will reduce your federal tax by $30 if you are in the 15 percent bracket or $56 if you are in the 28 percent bracket.
In other words, a $200 contribution to a public school for an extracurricular activity could reduce your income tax (both state and federal), if you itemize deductions, by $220 to $25. Any credit not used in 1998 can be carried over to the next five years.
John R. Wilson
Certified Public Accountant