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Planning for Tax Credits Now Can Benefit Education in the Future

Many communities in Pennsylvania have established a goal of providing improved educational opportunities in order to decrease poverty and to close the gap between available jobs and the skills of graduates. The Pennsylvania Department of Community and Economic Development (“DCED“) offers several types of tax credit programs to eligible businesses that promote innovation in education. These tax credits can be used to provide funds to public schools through non-profit foundations, private schools, eligible students who attend a low-achieving school, and eligible students who attend a pre-kindergarten program.

Businesses Eligible to Apply for These Credits To be eligible for these tax credits, a business must be authorized to do business in Pennsylvania, and the business must be subject to one or more of the following taxes: corporate net income tax, stock franchise tax, bank and trust company share tax, title insurance companies share tax, insurance premium tax, mutual thrift institution tax, or personal income tax of S-Corporation shareholders or partnership partners.

The Amount of the Available Credits The business receives a tax credit equal to 75 percent of its contribution up to a maximum of $400,000 per taxable year. This credit can be increased to 90 percent of the contribution if the business agrees to provide the same amount for two consecutive years. For contributions to a Pre-Kindergarten Scholarship Organization, 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.

Available Tax Credit Programs The DCED provides most of these tax credits through their Educational Improvement Tax Credit Program (“EITC“). There are three types of organizations that are eligible to receive funding through the EITC program: “scholarship organizations,“ “educational improvement organizations“ and "pre-kindergarten scholarship organizations." Businesses can choose which organizations will receive the grants funded by the tax credits. A list of the organizations that are eligible to receive these grants, as well as the guidelines pertaining to them, is available on the DCED’s website provided at the end of this article.

The EITC program is used to fund innovative educational programs that are not part of the regular curriculum, but rather offer an advanced academic or similar program that enhances the curriculum of the educational organization. All EITC funds have been exhausted for the current fiscal year (FY 2102-13). Because the new fiscal year begins on July 1, 2013, it makes sense to begin the planning and application process now in order to take advantage of whatever types of credits are available on July 1.

“Scholarship Organization“ tax credits can be used to provide funds to any public or non-public kindergarten, elementary or secondary school that satisfies the Public School Code’s compulsory attendance requirements and that meets the requirements of Title 6 of the Civil Rights Act of 1964.

“Educational Improvement Organization“ tax credits are awarded to nonprofit organizations only. The programs funded with these tax credits offer a different focus, delivery, methodology or skill training than is provided in a typical academic program of a public school.

“Pre-Kindergarten ScholarshipOrganization“ tax credits provide tuition to eligible pre-K students to attend a pre-K program operated by, or in conjunction with, a school within Pennsylvania. A school includes any public or non-public kindergarten, elementary school or secondary school. There are still credits available for a new program offered by the DCED, the “Opportunity Scholarship Tax Credit Program,“ which provides tuition assistance in the form of scholarships to eligible students residing within the boundaries of a low-achieving school to attend another public school outside of their district or non-public school.

The Application Process Applications can be submitted to the DCED’s Center for Business Financing, Tax Credit Division, 4th Floor, Commonwealth Keystone Building, 400 North Street, Harrisburg, PA 17120, 717/787-7120, or online at RA-EIPC@ pa.gov. Full requirement and application forms can be found at www.newpa.com/find-and-apply-for-funding/funding-and-program-finder/educationalimprovement- tax-credit-program-eitc.

For further information, contact Tom Pendleton at MacDonald, Illig, Jones & Britton LLP at 814/870-7756 or e-mail tpendleton@mijb.com.