SALT Safe Harbor and State Tax Credits for Charitable Organizations

Forum|Forum|5 years ago
March 8, 2021
9 replies
65 views

I made a charitable contribution to a Certified School Tuition Organization in Arizona that allows me to get a credit for Arizona state taxes. According to IRS rules, I cannot get both a deduction from federal taxes and a credit from state taxes for this charitable contribution. So I removed that as a charitable contribution in my federal taxes in TurboTax. However, under its SALT "safe harbor" rule, the IRS says in this situation rather than list the contribution as a charitable contribution in my federal return, I should list that charitable contribution as state taxes withheld on schedule A of my federal tax return. See https://www.irs.gov/pub/irs-drop/n-19-12.pdf.

I did that in TurboTax by listing the charitable contribution as an estimated state tax payment to Arizona in my federal return. But when I do that, TurboTax transfers my information from my state return and double-counts my contribution as both state taxes withheld and a state tax credit and therefore gives me a much too big state refund. That's wrong. TurboTax should not be counting the charitable contribution as both a withheld state tax and a state tax credit. How can I fix this problem?

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ThomasM125

Level 15

You would have leave the withheld tax entry off of your federal tax return and then file your state tax return. Then, enter the withheld tax and file your federal tax return. In other words, file the returns separately and change your entry to make each one of them correct when you file them.

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AZ48

Level 2

I don't understand why TurboTax does not fix this issue. It is beyond idiotic that one has to basically manipulate this. It should allow you to send them together.

jpurdon

Level 3

I wholeheartedly agree with you! I'm reading through all the Q&As on this very issue, and nobody has an acceptable answer. Hello, @turbotax11 @intuit11 is there anybody home???

BEL27

Level 3

This is the first year I've had to address this, but what seems to be working is to enter the disallowed deduction/safe harbor amount directly in the State column of line 18a Other Withholding of the "Tax Payments" Worksheet (under Forms). Then for the "St" entry to the left, I'm entering "SH" for Safe Harbor. (I think you could use any two letters that aren't the abbreviation for a real state.). Turbotax then treats this amount on the federal forms as state tax withheld for the SALT deduction (included on Line 5a of the federal Schedule A), but it does not include this as withholding on the state income tax forms (apparently because it doesn't know which state to associate it with). I'm not finding this to create any problems or miscalculations.

amhawk

Level 2

This is still an issue filing for tax year 2025!

TurboTax please fix this! we should not have to be doing work arounds for a reasonably common tax scenario in Arizona (ie charitable tax credits at state level, federal itemizing).

This was my first time doing the charitable tax credit and it was incredibly confusing to understand what was happening, and then see errors continuing even when consulting MANY of these different QA pages.

There seems to be a page in the Arizona taxes section that *SHOULD* be deducting the extra state taxes it tells you to claim on the federal for the credit (see picture below & instructions from learn more pop-out section on the side) so it's not double counted on the state side (as estimated tax pulled over from federal + tax credit) -- but it only makes a very small impact, not the full tax credit taken ($950 in my case).

See other discussion board below for detailed issue and considered "workarounds", other strands discuss needing to override on the state form

TurboTax can't handle SALT Safe Harbor + Arizona tax credits. Please fix for next year.

Tagging "turbotax experts" I've seen on similar threads to hopefully help push the issue up within TurboTax to get the programming fixed since it's spanning several years.