The proposed bill would update Arizona tax statutes by aligning them with the U.S. Internal Revenue Code (IRC) as of January 1, 2026, with retroactive provisions effective from January 1, 2025. Key changes include new individual income tax subtractions, modifications to existing deductions, and an increase in the Dependent Tax Credit from $100 to $125 for each dependent under 17 years old. The bill also declares Arizona's participation in the federal tax credit for contributions to school granting organizations (SGOs), detailing certification and administration requirements for these organizations. Specific amendments involve replacing the Arizona-specific standard deduction with a federal standard deduction coupling, allowing taxpayers to deduct up to $10,000 of state and local taxes instead of the full federal itemized deduction, and increasing the cap on charitable contributions for standard deduction purposes. Additionally, the bill requires the Arizona Department of Revenue to comply with federal laws regarding SGOs and to certify qualifying organizations. It also introduces new definitions and provisions for taxable years beginning after December 31, 2024, including deductions for qualified tips, overtime compensation, and retirement account distributions, while establishing a new chapter on scholarship granting organizations effective from December 31, 2026.

Statutes affected:
Introduced Version: 42-1001, 43-105, 43-301, 43-323, 43-1022, 43-1030, 43-1041, 43-1042, 43-1073.01, 43-1012, 43-1072, 43-1072.01, 43-1072.02, 43-1073, 43-1021, 43-1023, 43-309, 15-1628, 15-1451, 43-1333, 43-1025, 43-1027, 43-1029, 111-5, 111-92, 41-1518, 20-1691, 101-336, 43-1024, 43-1028
House Engrossed Version: 42-1001, 43-105, 43-301, 43-323, 43-1022, 43-1030, 43-1041, 43-1042, 43-1073.01, 43-1012, 43-1072, 43-1072.01, 43-1072.02, 43-1073, 43-1021, 43-1023, 43-309, 15-1628, 15-1451, 43-1333, 43-1025, 43-1027, 43-1029, 111-5, 111-92, 41-1518, 20-1691, 101-336, 43-1024, 43-1028