AZ 529 Tax Deduction: Can You Deduct Contributions on Your Return?
Learn how AZ 529 contributions may qualify for a state tax deduction, the limits that apply, and the forms and documentation needed to claim it.
Saving for education can be expensive, and 529 plans offer a tax-advantaged way to prepare for those costs. In Arizona, residents may benefit from a state tax deduction when they contribute to an AZ 529 plan, potentially lowering their taxable income.
Eligibility for the Deduction
Arizona taxpayers, including full-year and part-year residents who file a state income tax return, can claim a deduction for contributions to the Arizona Family College Savings Program (AZ 529 plan). Nonresidents who do not owe Arizona taxes are not eligible. Contributions to out-of-state 529 plans do not qualify, even if the beneficiary lives in Arizona.
The account owner does not need to be the beneficiary—parents, grandparents, and other relatives can contribute and still claim the deduction if they meet Arizona’s tax filing requirements. Contributions must be made during the tax year to be deductible; deposits made in January for the prior year do not qualify. Arizona imposes no income limits, so high earners can benefit. However, rollovers from other 529 plans do not count as new contributions and cannot be deducted.
Deduction Limit
For the 2024 tax year, Arizona taxpayers can deduct up to $2,000 per year if filing as a single taxpayer and $4,000 if married filing jointly. These limits apply per tax return, not per beneficiary or account. Even if a taxpayer contributes to multiple AZ 529 accounts, the total deduction cannot exceed the annual cap.
Excess contributions do not carry forward. If a single filer contributes $5,000, only $2,000 is deductible, and the remaining $3,000 cannot be applied in future years. To maximize deductions, taxpayers making large contributions may want to spread them over multiple years.
Forms to Claim the Deduction
Arizona taxpayers must report AZ 529 contributions on their state income tax return. Full-year residents use Form 140, part-year residents file Form 140PY, and nonresidents who owe Arizona tax use Form 140NR. The deduction is listed under subtractions from Arizona gross income.
Taxpayers must complete Schedule A of Form 140, which includes various subtractions from income. The contribution amount should be entered on the appropriate line, ensuring it does not exceed the annual limit. Taxpayers should keep records of their contributions, as the Arizona Department of Revenue may request documentation in case of an audit.
Documentation Requirements
Keeping detailed records of AZ 529 contributions is essential for verifying the deduction if audited. Financial institutions managing AZ 529 accounts provide annual statements showing all contributions made during the tax year. These statements should be kept for at least four years, in accordance with Arizona’s statute of limitations for tax assessments.
Additional proof, such as bank statements, canceled checks, or electronic transfer confirmations, can further support the deduction claim. For contributions made near year-end, verifying the transaction date is important, as only amounts posted within the tax year qualify. Mailed checks processed in the following year will not be deductible for the intended tax year.
If multiple individuals contribute to the same 529 account, each taxpayer must maintain their own proof of payment. Arizona does not require documentation to be submitted with the tax return, but if selected for review, failure to provide adequate records could result in a denied deduction and possible penalties.