PA Tax Incentives for Funding Education

Tax Tip Tuesday

With the school year having just wrapped up, it may seem like it’s time to take a summer vacation.  To breathe and relax a minute.  But as you know, being tax savvy is not just at tax time.  You have to be aware of opportunities and strike while the iron is hot. 

For Pennsylvania taxpayers and businesses, there are tax perks and right now that iron is hot!

The PA EITC program, established in 2001, offers businesses and individuals a credit to lower their tax liability through donations to K-12 private schools, scholarship organizations, pre-K programs, and other educational enrichment initiatives.

READ: Tax Tip Tuesday: Student Load Debt Relief

Big tax credits

Businesses can earn a tax credit anywhere from 75 percent of their financial contribution to PA EITC, up to 90 percent if the business commits to donating for a 2-year commitment!  For contributions to Pre-Kindergarten Scholarship Organizations, a business may receive a tax credit equal to 100 percent of the first $10,000 contributed and up to 90 percent of the remaining amount contributed up to a maximum credit of $200,000 annually.

The awarded tax credit may be applied against the tax liability of a business for the tax year in which the contribution was made.  This is a great way for a business to significantly reduce its tax liability while also aiding with the education of the future workforce.

Tax credits are typically only available May 15 for existing donors and July 1 for new donors. These tax credits are for eligible businesses contributing to a Scholarship Organization, an Educational Improvement Organization, and/or a Pre-Kindergarten Scholarship Organization and are available on a first come first-serve basis until the amount of available tax credits is exhausted. 

If your corporation is considering taking advantage of this special tax credit that support students’ education, your application deadline is just around the corner – July 1!

The requirements

Of course, there are eligibility requirements for the donating business entity as well.  First, the business must be authorized to do business in PA and must be subject to one of the following taxes:

•             Personal Income Tax

•             Capital Stock/Foreign Franchise Tax

•             Corporate Net Income Tax

•             Bank Shares Tax

•             Title Insurance & Trust Company Shares Tax

•             Insurance Premium Tax (excluding surplus lines, unauthorized, domestic/foreign marine)

•             Mutual Thrift Tax

•             Malt Beverage Tax

•             Retaliatory Fees under section 212 of the Insurance Company Law of 1921

Information regarding the process for applying can be found in the business application guide. 

Pennsylvania’s Educational Improvement Tax Credit (PA EITC) program helps tens of thousands of students with education expenses.  The average scholarship size is about $2,000.  Although this amount is on average just 13% of a student’s expenditure, it’s still $2000 less out of your pocket!  Of course, there are eligibility requirements which target low to middle income families.

Income brackets

The family’s household income must not exceed $96,676 plus $17,017 for each child in the family for 2021-2022. For example, a family with one child must have an income below $113,693 whereas a family with three children must have an income below $147,727.  (The figures will increase in future years to adjust for inflation.)

Students with special needs are eligible for scholarships if they come from families who earn 150 percent of the baseline income level (for example, a family with one child may earn up to $170,540 in 2021–22) or less, and those with the most severe special needs who are enrolled in special education-specific schools are eligible if they come from families who earn 299 percent of the baseline income level ($339,942 for a one-child family in 2021–22) or less.

The EITC program

Since 2001, Pennsylvania’s EITC program has allowed businesses and individuals to lower their tax bills by donating to private schools, scholarship organizations, pre-K programs, and other educational enrichment initiatives.

If you are interested in utilizing this tax perk from the state of Pennsylvania, contact us for additional questions.  My staff and I are always available to help with all your financial questions.  That’s why our slogan is “Less Taxing Life.  More Prosperous Solutions.”  We want to ensure that you can take a vacation, breathe and have a minute to relax.  To learn more about us, click here: Saunders Tax & Accounting.