The state of Pennsylvania currently offers two educational tax credit programs to eligible residents and businesses namely, the Educational Improvement Tax Credit (EITC) and Opportunity Scholarship Tax Credit (OSTC) programs. These programs award eligible businesses and individuals tax credits when they contribute to scholarship granting organizations that provide grants for children in Pennsylvania. Previously these programs have only allowed businesses to donate. But due to a major amendment to the Pennsylvania educational tax credit programs (Act 194 of 2014), interested individual taxpayers can now participate in these programs.
This is how it works: Children’s Tuition Fund has set up several Limited Liability Companies (also referred to as a Special Purpose Entity). Applications for receiving tax credits are submitted to the state. Once tax credits are approved by the state, individual taxpayers can join a Special Purpose Entity (SPE) by completing a joinder agreement. This allows individuals to participate in the EITC and OSTC tax credit programs and receive tax-credits to offset their personal income tax liabilities in Pennsylvania. Each member makes their contribution to the SPE and designates the school receiving the funds. Members of the SPE will receive a K-1 towards the end of February which they will use when submitting their tax return. Individual taxpayers can receive tax credits of up to 90 percent of the donation amount and even a federal charitable tax deduction.
Who can qualify to join a special purpose entity and receive individual tax credits?
To participate in the PA Education tax-credit program an individual must meet the following criteria:
- Work for a business or own a business
- Does not work for a non-profit or a government entity (possible exceptions)
- Commits to participate and contribute for 2 consecutive years
- Minimum contribution amount may be required
What are the benefits of joining a Special Purpose Entity?
Joining a special purpose entity to donate to scholarship-granting organizations can give you a lot of benefits as a taxpayer in Pennsylvania. You receive a 90% Pennsylvania tax-credit which you can use toward your tax liability. You can also get a federal charitable deduction for the 10% not covered by the tax credit.
Aside from the mentioned benefits, there is also a personal satisfaction that comes with giving through this program. With this, you are using Pennsylvania taxes to leverage your interests in helping students coming from low-income families. Your contribution to the school of your choice will provide scholarships for eligible students. Moreover, as a taxpayer, you get public benefits from contributing. Providing the educational demands in your community can improve the lives of everyone in your community including you.
As a Pennsylvania resident, you can increase your tax benefits by participating in a SPE to provide scholarships for children in Pennsylvania. To explore this option contact Children’s Tuition Fund of PA today!