PA program gives tax credits for helping students: But companies need to act fast

by Robert J. Murphy

Pennsylvania’s recently passed state budget gives companies a chance to make a real difference by supporting education in their local communities while earning tax credits.

Lawmakers added $40 million to the Educational Improvement Tax Credit (EITC) program, which gives credits to companies that contribute money to public or private primary and secondary school scholarships, as well as “educational improvement organizations’’ such as museums and libraries.

Though the state budget increased available tax credits by 22 percent to $225 million, businesses interested in taking advantage of the program should apply as soon as possible – credit approval is on a first-come, first-served basis. 

As a board member for The Joshua Group – a Harrisburg nonprofit providing additional educational opportunities for more than 200 residents of the city’s struggling Allison Hill section – I know first-hand the vital role donors play in providing learning opportunities.

I became involved with The Joshua Group because I believe education is the ultimate anti-poverty treatment – and the EITC program is one of the best treatments available.

Under EITC, companies earn credits that may be applied against state business taxes by donating up to $750,000 in one year to an approved educational institution– additional credits if they commit to two years.

The following are some commonly asked questions about the EITC program:

How do businesses apply, and how do the credits work?

Businesses apply through the state Department of Community and Economic Development (DCED) and must submit their paperwork online – click here for instructions and the required form.

Acceptance of applications for fiscal year 2021-2022 began July 1, 2021.  Companies enrolling in EITC for the first time are encouraged to submit applications now – already enrolled businesses who have not already reapplied should also submit their application as soon as possible.

Donors to most scholarship programs or educational improvement organizations receive tax credits equaling 75 percent of up to a $750,000 contribution in a single year, or up to 90 percent if the business commits to the same amount in two consecutive years.

• More credits for pre-Kindergarten: Businesses contributing to a Pre-Kindergarten Scholarship Organization receive 100 percent credit for the first $10,000 and up to 90 percent of the remaining amount up to a maximum credit of $200,000 annually.

Under the program, a company must provide the DCED proof of their contribution within 90 days of getting EITC approval. Tax credits are only usable in the same year of the assistance and are not refundable or transferable. However, a pass-through entity can make an irrevocable election to transfer any remaining EITC credits to its owners (this applies to all classes of owner income). 

What kind of tax credits are available?

Businesses can apply the credits to one or more 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

How do I find out what educational organizations qualify for EITC credits?

Schools and other educational organizations have to apply to DCED to qualify for EITC contributions. DCED maintains a list, available on its website, of approved organizations broken down by type:

• Scholarship Organizations
• Educational Improvement Organizations
• Pre-Kindergarten Scholarship Organizations

• For more information about the EITC program, visit:

            https://dced.pa.gov/programs/educational-improvement-tax-credit-program-eitc/

 

Bottom line

Expanding educational opportunities for Pennsylvania’s youth was a goal for lawmakers in the recent budget. As business owners, we know education is the foundation for a strong and thriving community. 

We now have the opportunity to support our local educational institutions, and strengthen our communities, while benefiting from the state’s incentives in the form of tax credits. 

The EITC program is an excellent opportunity for companies to show their commitment to helping their communities by directly contributing to approved educational organizations.

If you have any questions about EITC or any tax matters, the expert team at Boyer & Ritter is ready to help.

Robert J. Murphy, CPA, CVA/ABV, is Principal and CEO of Boyer & Ritter and has over 40 years of experience providing auditing, accounting and consulting services. He has specific expertise working with auto dealership, and  for-profit, closely held commercial clients. Contact Bob at 717-761-7210 or rmurphy@cpabr.com