The Pennsylvania Department of Revenue has issued Informational Notice Miscellaneous Tax 2015-01 (“Notice”) that addresses taxpayer questions resulting from Act 194 of 2014. The law change, which went into effect on October 31, 2014, made changes to the administration and structure of the Education Improvement Tax Credit (“EITC”) including a name change to “Education Tax Credits.” The Education Tax Credits now include the Opportunity Scholarship Tax Credits, which were previously a separate program in addition to the EITC. The notice discusses the expanded definition of “business firm” and the application of the tax credits to various entities and persons.
Businesses eligible for Education Tax Credits now include special purpose pass-through entities and entities subject to malt beverage tax. A special purpose entity is “composed of shareholders, partners or members, or employees of one or more other business firms.” A pass-through entity may now transfer tax credits to another pass-through entity in which it has an ownership interest. A pass-through entity may include a business trust; however, a personal trust or family trust cannot be considered a pass-through entity.
The Notice answers questions about the application of tax credits by individuals and companies. Individuals may not use the tax credits to make estimated payments, but should adjust their total estimated tax to reflect the tax credit, effectively lowering their estimated tax payments. The Notice includes an example of how an individual applies tax credits to their calculation of estimated payments. Corporate taxpayers are eligible to use the tax credits to pay their quarterly estimated corporate taxes.
For information on the Education Tax Credit law change, view our previous article Pennsylvania Expands Educational Tax Credits. If you have any questions about Pennsylvania Education Tax Credits, please contact a member of our State and Local Tax (SALT) team.