New In Pennsylvania: Back to School on the Educational Improvement Tax Credit

How often do you think about where your business’ tax dollars are going? What if you had the power to direct your tax dollars towards your local community’s educational system and increase your company’s tax benefits at the same time? The opportunity to support the education of tomorrow’s workforce while furthering your company’s profitability is a no-brainer for any discerning businessman or woman.

Pennsylvania’s Educational Improvement Tax Credit (EITC) has accomplished what many in the state have been advocating for years: getting the business community more involved in education. Through the EITC, Pennsylvania has created a pathway to fund this goal and has developed a tax credit program to incentivize local businesses to participate.

What is the EITC?
The Educational Improvement Tax Credit provides tax credits to eligible businesses contributing to a Scholarship Organization, an Educational Improvement Organization, and/or a Pre-Kindergarten Scholarship Organization.

EITC scholarships have provided thousands of lifeboats to families looking to escape failing public schools, as well as, those struggling to remain in non-public schools. Since the program’s inception, more than 23,500 business applications have been approved, representing contributions in excess of $657 million dollars.

A business may receive a tax credit equal to 75 percent of its contribution, up to a maximum of $750,000 per taxable year, for contributions to Scholarship Organizations or Educational Improvement Organizations. The credit can be increased to 90 percent of the contribution if the business pledges to contribute the same amount for two consecutive tax years.

For contributions to Pre-Kindergarten Scholarship Organizations, 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.

In addition to EITC program tax credits, companies may also take state and federal tax deductions for these educational charitable contributions.

For example:
Company XYZ files an application with the Pennsylvania Department of Community and Economic Development (DCED) and makes a contribution of $300,000 per year for two years. Immediately, the company receives a $270,000 tax credit, resulting in a $30,000 net cost. The contribution also qualifies as a charitable deduction for federal corporate income taxes. The taxpayer receives the benefit of both the credit and the charitable contribution deductions, substantially reducing the actual cost of the contribution.

The EITC program and the associated tax deductions create a win-win situation for the partnership between Pennsylvania’s business community and the educational system.

What are the eligibility requirements?
In order to be eligible for EITC, businesses must be authorized to do business in Pennsylvania and are subject to one or more of the following:

• 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.
• Insurance Company Law of 1921.
• Personal Income Tax of S corporation shareholders or Partnership partners.

Once an application is approved, the business will receive a letter of approval from the DCED. The business must then submit a monetary contribution to an approved organization within 60 days and provide proof to DCED of the contribution within 90 days of the notification letter. Tax credits not used in the tax year the contribution is made may not be carried forward or carried back and are not refundable or transferable. A Marcum professional can guide applicants through other terms.

How can your business apply?
The EITC is administered by the DCED. Pennsylvania businesses can begin applying for EITC credits through the electronic single application system. (The DCED will no longer accept mailed applications). The business application guide will explain the process of applying. For information or to apply, visit the DCED website at www.newpa.com/eitc.

Applications will be accepted beginning July 1, 2015 for businesses making first-year contributions. The application process is open to all entity types. Interested parties are encouraged to apply early, as tax credit applications will be processed on a first-come, first-served basis by day submitted, and once the credits are exhausted, the opportunities for benefits are lost. Total tax credits approved shall not exceed $30 million in a fiscal year.

Should you have any additional questions regarding the EITC, please contact your Marcum professional.