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What is the Educational Improvement Tax Credit?
The Educational Improvement Tax Credit (EITC) provides companies with a 75% tax credit for donations to a non-profit scholarship or educational improvement organization. The tax credit increases to 90% if the company commits to making the same donations for two consecutive years. A business paying taxes in Pennsylvania can receive up to $300,000 in tax credits annually. More importantly, the EITC provides children and families with a choice in their education and a chance in life.
How much money is available and who qualifies to get the scholarship and educational improvement credit money?
For the Pennsylvania fiscal years through 2014, the state budget has designated $75 million a year that is divided $44,666,667 million is appropriated annually for scholarship organizations; $22,333,333 million for innovative educational improvement programs in public schools; and $8,000,000 for a separate pre-kindergarten scholarship program.
The scholarships are for privately run schools that are registered with the Pennsylvania Department of Community and Economic Development to be involved in the program. The scholarships are then restricted to families whose household income is below $50,000 with an additional $10,000 allowance per child and dependent members of the household. (i.e. A family with 3 children cannot exceed $80,000 in household income.)
What types of taxes can be offset by this credit?
A business must be subject to one of the following seven Pennsylvania business taxes to participate:
- Corporate Net Income Tax
- Capital Stock Franchise Tax
- Personal Income Tax of S Corporation Shareholders, or partners in a limited or general partnership
- Bank and Trust Company Shares Tax
- Insurance Premiums Tax
- Mutual Thrift Institutions Tax
- Title Insurance Companies Shares Tax
Can I see an example of how the credit works?
Sample Calculation for LLC, Partnership or S-Corporation (2 year commitment):
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Cash to Charity
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$10,000
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PA Tax Credit Reduction (90% of contribution)
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(9,000)
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PA Tax Savings from Contribution
(3.07% tax rate)
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(307)
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Net Federal Tax Reduction for contribution
(35% tax rate)
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(243)*
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Out of Pocket
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$ 450**
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*($10,000-9,000-307*35%) Additional savings if taxpayer is in AMT
**Additional savings if taxpayer pays local income tax
This business owner redirected $9,550 from Harrisburg to a local scholarship organization.
For more information, please contact:
Brian Gallagher, MT, CPA
Managing Member
Direct Dial: 484.395.2201
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