Pennsylvania Governor Tom Wolf recently signed a $39.7 billion state budget into law on June 30, instituting the largest increase in state education funding in recent memory.
Included in the $300 million influx in general education funding was a $40 million boost for the educational improvement tax credit (“EITC”) program, which in turn provides an extra 13,000 eligible scholarships for students seeking a private education.
What Is the EITC Program?
The Pennsylvania EITC program, administered by the Department of Community and Economic Development (“PA DCED”), provides eligible businesses the opportunity to earn tax credits for contributing to Scholarship Organizations, Educational Improvement Organizations and/or Pre-Kindergarten Scholarship Organizations.
Scholarship Organizations and Pre-Kindergarten Scholarship Organizations are nonprofit organizations that provide scholarships to students who are pursuing a private school education. Educational Improvement Organizations are nonprofits that develop innovative educational programs for public schools.
For corporate and pass-through taxpayers to be eligible for the credit, the business must be authorized to do business in the Commonwealth and be subject to either the corporate net income tax or personal income tax.
The EITC Program’s Benefit to Pennsylvania Taxpayers
The potential tax credit for businesses is equal to 75% of the contribution to the qualified organization with a maximum credit of $750,000 for the taxable year. Additionally, the credit can be expanded up to 90% of the contribution if the business agrees to provide the same dollar amount in contributions for consecutive tax years. Unfortunately, a taxpayer cannot carry forward any unused portion of the credit, and the credit cannot be transferred to another taxpayer. The credits are awarded on a first-come, first-serve basis.
Corporate and pass-through entities that have large PA tax liabilities can take advantage of the EITC program, as it provides the potential for a dollar-for-dollar decrease in their PA tax liability while providing life-changing scholarships and educational funding to Pennsylvania residents looking to better their education. The latest expansion of the EITC program through the state budget gives more business taxpayers the opportunity to take advantage of the program than ever before.
The State and Local Tax practice at Schneider Downs has experience consulting with businesses on all aspects of obtaining state tax credits and incentives such as the PA EITC. For more information on how your business can take advantage of the PA EITC or the potential savings through other state tax credits and incentives, please reach out to Stephen Worth or Justin Premich of the Schneider Downs SALT team.
You’ve heard our thoughts… We’d like to hear yours
The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at [email protected].
Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.