Pennsylvania offers a great way for businesses, and now even individuals, to receive potential tax benefits for their charitable contributions. There are two programs I’ll mention here, with the most popular program being the Educational Improvement Tax Credit (EITC) program.
Businesses may receive a credit against Pennsylvania taxes by contributing to one of three types of organizations: Educational Improvement Organizations, Scholarship Organizations, and Pre-K Scholarship Organizations. Pennsylvania provides a list of these organizations here. A particular nonprofit organization that meets certain criteria may apply to become one of these organizations. The first two types of organizations listed above are eligible for a PA tax credit of 75% or 90% of the amount of the contribution, depending on whether the donor is making a one or two year commitment. The Pre-K Scholarship Organization provides a different credit amount than the other two, allowing a 100% PA credit against the first $10,000 contributed, with a 90% credit on additional amounts.
The Opportunity Scholarship Tax Credit (OSTC) is the other credit program that is very similar to the EITC, but the donations may only go to scholarship organizations for students in underperforming schools.
The types of businesses that qualify for the program include those authorized to do business in the Commonwealth of Pennsylvania which are subject to tax or whose owners are subject to tax. This includes pass-through entities and special purpose pass-through entities. Special Purpose Entities allow individuals to form an entity together with the specific intention of contributing to these programs, since the tax credits can be taken against personal income tax as well. This could provide a great tax benefit for individuals who may no longer be able to itemize deductions under the Tax Cuts & Jobs Act but would still like to receive a benefit for their contributions.
Applications open July 1st for new applicants and May 15th for returning applicants. The applications are accepted on a first-come-first-serve basis, so businesses should apply on their respective application dates for the best chance of being accepted into the program.
If you have any questions regarding this article or on the program and steps to apply, please contact Lindsey Waltemyer, Tax Supervisor with McKonly & Asbury, at firstname.lastname@example.org.