The Educational Improvement Tax Credit (EITC) Program
The Educational Improvement Tax Credit (EITC) Program authorizes tax credits for businesses that make contributions to Educational Improvement Organizations or Scholarship Organizations. The program is administered by the Pennsylvania Department of Community and Economic Development (PA DCED).
Businesses can significantly reduce their liability for Pennsylvania taxes while they support organizations, like the East Penn School District Education Foundation. Companies can get a dollar-for-dollar credit for an EITC donation. Eligible companies may take up to $300,000 in tax credits per year.
You can read more about the EITC Program at the PA DCED Website.
FAQ & A
Q. What is the Educational Improvement Tax Credit (EITC) Program?
A. The Educational Improvement Tax Credit (EITC) Program authorizes tax credits (not deductions) for businesses that make contributions to Educational Improvement Organizations (such as the East Penn School District Education Foundation) or scholarship organizations. The program is administered by the Pennsylvania Department of Community and Economic Development (DCED). The EITC Program enables companies to support nonprofit school foundations at minimal cost. Instead of sending tax dollars to Harrisburg, companies can reallocate them to support the East Penn School District via the East Penn School District Education Foundation.
A tax credit is available for businesses that make donations to a local educational improvement organization.
Q. What businesses qualify?
A. Any business that pays any of the following Pennsylvania taxes:
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 Partnership partners
Q. Why should businesses participate?
A. Businesses can significantly reduce their liability for Pennsylvania taxes while they support organizations, like the East Penn School District Education Foundation, which enhance educational opportunities for children. Additionally, by participating in the EITC program, an organization accrues the public relations benefits that occur whenever a company supports a worthy cause in the area where it does business. By supporting an education organization in which employees have a special interest, an employer can gain the appreciation of the people who make the business work.
Q. How much of a tax credit can I get for my business?
A. The tax credit is a 75%-90% credit (against taxes owed). To gain the maximum 90% tax credit, a company must provide a written two-year commitment of equal funding to an education foundation. Companies can effectively get a dollar-for-dollar credit for an EITC donation because if a company has not maximized their percentage of charitable donations, they can also deduct their contribution on their federal tax return. Eligible companies may take up to $300,000 in tax credits per year. Here is an example:
1. If Business X owes $50,000 in Pennsylvania taxes and commits to make a donation to East Penn School District Education Foundation for one year, Business X may contribute up to $37,500 (75% of $50,000) to East Penn School District Education Foundation in year one and pay the remaining $12,500 to the Commonwealth of Pennsylvania.
2. If Business X commits to make the same donation for two consecutive years, then it may contribute up to $45,000 (90% of $50,000) to East Penn School District Education Foundation and pay the remaining $5,000 to the Commonwealth of Pennsylvania, in each of the two years.
A contribution of any amount is welcome and may be a source of great pride for the business owner and employees. Each gift, no matter the size, helps a student to receive the education he or she needs to reach personal potential and take a fulfilling, rewarding place in society.
Q. How do businesses apply for the tax credit?
A. The application form and information is available on the Department of Community and Economic Development’s (DCED) web site which can be found by clicking here.
Business completes online application by submitting it to the PA DCED website on May 15, 2018. Complete instructions on how to submit an application for the 2018-19 program for businesses can be found here. You can also contact DCEC at (717) 787-7120. The process must be completed online.
Business receives a letter of approval from DCED.
Business submits monetary contribution within 60 days to EPSD Education Foundation.
EPSD Education Foundation provides business with acknowledgment of contribution.
Business submits acknowledgment to DCED.
DCED communicates with PA Dept. of Revenue and applicable tax credit is applied to business tax account.
Credit is taken as a payment of taxes on businesses’ annual state tax return filing.
Q. Do you have a question that isn’t answered here?
A. You can contact John Zayaitz with questions regarding Pennsylvania’s EITC program by emailing him at jzayaitz@crycpas.com.