Turn Your Business Tax Liability Into Scholarship

Pennsylvania’s Educational Improvement Tax Credit Program for Children in Need

 

Background

On May 7, 2001, by an overwhelming bi-partisan majority, Pennsylvania made history by becoming the first state to pass an education tax credit aimed at corporations and businesses.
 
The Educational Improvement Tax Credit (EITC), HB 996, provides companies with a significant tax credit for donations to a non-profit scholarship organization.  The Jewish Federation of the Lehigh Valley is certified by the Commonwealth of Pennsylvania Department of Community and Economic Development as an authorized scholarship organization.

In short, the program provides Pennsylvania tax credits to offset the tax liability of a business or business owner that makes a qualified charitable contribution benefiting children from low-income families.  The tax credit is taken in the year in which the contribution is made.  With the contribution’s remaining eligibility for Federal income tax charitable deduction, there is virtually no cost (or pennies on the dollar) to participate in the program.  The EITC program is the ultimate WIN – WIN situation.

The EITC has accomplished what many in Pennsylvania have been advocating for years: to get the business community more involved in education.  This tax credit redirects tax dollars to the schools via the charitable organization.  It's that simple.

Benefits of the EITC Program

Since participating in the EITC program, the Jewish Federation of the Lehigh Valley has been able to distribute over $1.1 million in scholarships benefitting low income families at the Allentown Jewish Community Center and the Jewish Day School of the Lehigh Valley.  Without these scholarships, the children of low income families would not be able to afford the specific educational opportunities they have selected to best meet the needs of their children.

The Jewish Federation of the Lehigh Valley awards the scholarships to children from families whose household incomes meet the Commonwealth’s guidelines.  In partnership with the participating schools, household income is carefully substantiated, in a respectful manner, so as to insure full compliance with state policies.

 

Business Eligibility Guidelines

Businesses authorized to do business in Pennsylvania who are subject to one or more of the following taxes are eligible to participate in the EITC Program:

• Corporate Net Income Tax
• Capital Stock Franchise Tax
• Bank and Trust Company Shares Tax
• Title Insurance Companies Shares Tax
• Insurance Premiums Tax
• Mutual Thrift Institution Tax
• Personal Income Tax of S-Corporation Shareholders, or Partners in a General or Limited Partnership

Corporations (both “C” and “S”) can significantly reduce their Pennsylvania state tax liability by receiving tax credits for donations to state-approved scholarship organizations such as the Jewish Federation of the Lehigh Valley.  Owners of sub-chapter S corporations and other small and medium-sized businesses that pay personal income tax on PA business income can fully participate in the program as well.

Corporations and business owners can choose between two distinct tax credit programs that provide needs-based scholarships to children from low income families attending the Jewish Day School of the Lehigh Valley (Pre-K to Grade 8) or the Jewish Community Center of Allentown (Pre-K to Kindergarten). 

Participants in the EITC program may receive a state tax credit for up to 75% of their contribution up to a maximum of $300,000 per taxable year; the credit can be increased to 90% of the contribution, if the corporation or business owner agrees to provide the same amount for two consecutive tax years. Participants in the Pre-K EITC program may receive a tax credit equal to 100% of the first $10,000 contributed and up to 90% of the remaining amount contributed up to a maximum credit of $150,000 annually. 

Participating corporations and/or business owners that make donations to the Jewish Federation of the Lehigh Valley’s EITC Scholarship program can also claim a charitable tax deduction on their federal tax return.

How to Apply

The application process is extremely efficient.  The first step requires an interested business or business owner to send the PA State Department of Community and Economic Development (DCED) a one-page application for the tax credit.  After the DCED reviews the application and confirms there is money available in the program, tax credits will be awarded on a first-come, first-served basis.  Once approval is received by letter from DCED, businesses must make their contribution(s) within 60 days.  Upon receipt of the contribution, the Jewish Federation will provide substantiation of the donation.  The business simply files this substantiation with the DCED to complete the process.  The business is then able to claim the tax credit on its subsequent state tax filing.  Specific procedures for business owners electing to pass through the EITC to individual tax returns are found in the application packets noted below.

CLICK HERE to download an application packet. 

Click below to see the tax savings you may achieve by your EITC contribution:

Sample Calculations for C-Corps

Sample Calculations for S-Corps/Pass-Through Entities

For further information about this exciting opportunity, please contact the Jewish Federation of the Lehigh Valley at 610-821-5500.  Check back again soon for sample tax computations.

You may also obtain additional information by calling the PA Department of Community and Economic Development at 717-787-7120 or online at www.newpa.org.

NOW IS THE BEST TIME TO ACT!!    Each year the Commonwealth of Pennsylvania budgets a certain amount of funds for the EITC program.  Applications for the tax credits are accepted on July 1 of each year (earlier if it is for the 2nd year of a 2-year commitment).  Because of the popularity of the program, businesses are encouraged to apply for the credit as early as possible.  However, applications are encouraged throughout the year as unallocated credits usually become available.

 
FOR MORE INFORMATION
Mark L. Goldstein
markg@jflv.org
Jewish Federation of the Lehigh Valley
702 North 22nd Street
Allentown, PA 18104
610-821-5500