Income Tax Checkoffs

Virtually every state now offers voluntary income tax checkoffs to fund popular social causes. Income tax checkoffs are most common for supporting wildlife preservation, child abuse prevention and political campaigns. These funds are occasionally used to fund the arts; however, the strategy has been implemented in very few states. Less than 2% of taxpayers participate in checkoffs, making them a modest funding strategy for most organizations and causes.

In fiscal year 2018, only four state arts agencies reported receiving funds from tax checkoff programs. California is the only state to receive a substantial amount, $250,000, from this funding mechanism. For other states, receipts ranged from $4,700-$17,000. Several additional states have discontinued previous arts checkoff mechanisms due to low funding returns.

States with Arts Checkoffs, Past and Present

Advantages of Checkoffs

  • Taxpayers can choose to participate, making the system completely voluntary.
  • Checkoffs are very simple means of raising funds for an organization.
  • Legislators find checkoffs appealing because they do not require a new tax.
  • If competition is low (with few causes listed on the tax form), checkoffs can be an opportunistic source of funds.
  • Presence of the arts on the tax form may raise awareness of the state arts agency and its programs.

Disadvantages of Checkoffs

  • Checkoffs do not raise substantial money for the arts.
  • Participation is often discouraged by tax preparers in an effort to keep their clients’ taxes as low as possible.
  • Competition with other checkoff options results in less money for each one.
  • Checkoffs can lead to administrative problems for state tax agencies in simplifying and processing tax forms.
  • Lack of citizen participation in the checkoff program may be misconstrued as lack of citizen support for the arts.

Issues to Consider

  • Will the presence of checkoffs change the perceptions of state legislators? In some cases, state elected officials may perceive the ongoing appropriation of general fund dollars as less urgent if there is a dedicated funding mechanism available, such as a checkoff.
  • How many checkoffs are on the state’s tax form? Studies show that the more options there are available to taxpayers, the less money is generated across the board.
  • Is there a budget available to promote the checkoff? Promotion is essential to the success of this funding strategy, but some organizations find that the costs of promotion exceed the dollars generated. States recommend public service announcements targeted to taxpayers, as well as some sort of promotion targeted specifically to tax preparers.

For more information about income tax checkoffs or other dedicated revenue strategies, contact NASAA Senior Director of Research Ryan Stubbs.