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Pennsylvania Expands Educational Tax Credits

Not-for-Profit|State and Local Tax

By Matthew Dodge

Governor Tom Corbett signed new legislation that addresses the Commonwealth’s educational tax credits available to business.  H.B. 91 unifies the Education Improvement Tax Credit (EITC) and the Opportunity Scholarship Tax Credit (OSTC) under one statute into the educational improvement and opportunity scholarship tax credits.  The new law aims for improved administration and utilization of the tax credits.

Expanded Educational Tax Credits

The educational improvement and opportunity scholarship tax credits are administered by the Department of Community and Economic Development.  The new law provides the Department with greater authority to distribute all tax credits available in a fiscal year.  Maximum tax credits per applicant will be lifted if all tax credits have not been awarded by October 1 of the fiscal year.  The current statutory tax credit limits by category are:  $750,000 for scholarship and educational improvement organizations, $750,000 for opportunity scholarship organizations and $200,000 for pre-kindergarten organizations.  In years when the tax credit limitation is lifted, a second application period will occur from October 1 through November 30.  If after the second round of applications, tax credits still exist in any category, the Department will be permitted to transfer unused tax credits between the various programs with the exception that no additional tax credits may be transferred to the category of education improvement organizations. 

There are several administrative changes in the legislation that may impact businesses: 

  1. An application for tax credits in one category will be considered an application for tax credits in another category (at the applicant’s election) if the first choice of tax credits is not available. 
  2. The Department will maintain a waiting list of businesses that applied for tax credits, but were not approved, due to lack of available tax credits.  If tax credits become available, the Department will contact the business and award the tax credits.  
  3. Pass-through entities that receive a tax credit distribution from another pass-through entity are now allowed to distribute the tax credits received to yet another pass-through entity or shareholders, members or partners.  Shareholders, members or partners may apply the credit to their spouse if both report income on a joint personal income tax return.

Read our new article on the update on Education Improvement Tax Credit (EITC), including the name change to Education Tax Credits.
Updated on March 25, 2015.

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