Pathways to Give
Educational Improvement Tax Credit Program (EITC)
Tax credits to eligible businesses contributing to a Scholarship Organization, an Educational Improvement Organization, and/or a Pre-Kindergarten Scholarship Organization.
Business Application Timeline
- May 15 – Business applicants who have fulfilled their 2-year commitment and wish to reapply in FY 13/14 to renew their 2-year commitment.
- May 15 – Businesses who are in the middle of their 2-year commitment.
- July 1 – All other businesses including Pre-K business applications.
Pass-through entities, such as S-Corporations, Partnerships, LLs, etc., can now apply the same day as C-Corporations. Applications must be submitted electronically using DCED’sSingle Application for Assistance. Paper business applications will no longer be accepted. See the business application guide in the box above.
OSTC Tax Credits Still Available
Tax credits may be applied against the tax liability of a business for the tax year in which the contribution was made.
Tax credits equal to 75 percent of its contribution up to a maximum of $750,000 per taxable year. Can be increased to 90 percent of the contribution, if business agrees to provide 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.
Businesses authorized to do business in Pennsylvania who are subject to one or more of the following 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
- Insurance Company Law of 1921
- Personal Income Tax of S corporation shareholders or Partnership partners
An approved company must provide proof to DCED within 90 days of the notification letter that the contribution was made within 60 days of the notification letter. Tax credits not used in the tax year the contribution was made may not be carried forward or carried back and are not refundable or transferable.
How to Apply
Pennsylvania businesses can begin applying for EITC credits through DCED’s electronic single application system. The business application guide explains the process of applying. Tax credit applications will be processed on a first-come, first-served basis by day submitted. All applications received on a specific day will be processed on a random basis before moving on to the next day’s applications. Applications will be approved until the amount of available tax credits is exhausted.
Amount of donor’s charitable contribution
Securities held long-term: In general, if an individual donates securities held long-term to a “public” charity, such as a church, educational institution, health care organization, or other cause, the amount he or she can claim as a charitable gift for federal income tax purposes is the securities’ fair market value on the date of the gift. See Internal Revenue Code section 170(b)(1)(A).
“Long-term” means at least 12 months and one day. See IRC section 1222(3). The holding period to qualify as long-term property for deduction of appreciated property gifts at full market value remains 12 months and a day.
Securities held short-term: The amount that can be claimed as a charitable gift in the case of donated securities held short-term, on the other hand, is the donor’s cost basis in the securities if the cost basis is less than the securities’ fair market value. See IRC section 170(e)(1)(A).
Securities that have declined in value: Shares that have gone down in value since being purchased generally should not be donated, because a gift of such an investment does not cause the potential capital loss to be realized for federal income tax purposes. Instead, the donor should sell the shares to realize the loss and then give the cash from the sale.
Fair market value: For purposes of determining the amount of the donor’s charitable gift, the fair market value of publicly traded securities is generally the average of its high and low trading prices on the date of the gift. See Regulation section 25.2512-2(b)(1).
Private foundations: Special rules may apply to gifts of appreciated property to private foundations. See IRC section 170(e).
Donors should be well advised regarding current rules before completing such gifts.
The donor’s income tax charitable deduction
The federal income tax charitable deduction is subject to various percentage limitations.
The overall ceiling on the deduction is 50% of adjusted gross income (AGI). Gifts of cash and short-term capital gain property to “public” charities are deductible up to this 50% limit. See IRC section 170(b)(1)(A).
Gifts to “public” charities of appreciated stock held long-term (together with certain other types of other long-term appreciated property contributions) are generally deductible up to 30% of AGI. See IRC section 170(b)(1)(C).
“Excess” contributions may be carried forward for up to five subsequent tax years. See IRC section 170(d)(1).
The interplay of the 50% and 30% limits and the carry-over rules sets out a hierarchy that governs the order in which various types of gifts (to public charities) are to be deducted as follows:
- Current gifts subject to the 50% limit
- Current gifts subject to the 30% limit
- Carried-over gifts subject to the 50% limit
- Carried-over gifts subject to the 30% limit. See IRC section 170(b)(1)(B).
- A special election
A contributor of appreciated stock or other appreciated assets subject to the 30% limitation may find the 30% limit too tight a restriction and wish that the higher 50% limitation be applied to his or her gift.
For example, the donated asset may be only slightly appreciated. Or the donation may be quite large relative to the donor’s income, with the result that a large portion of the gift will have to be carried over into years when the donor will not be able to make such good use of deductions.
Donors in these circumstances may wish to avail themselves of a special election under IRC section 170(b)(1)(C)(iii). The election permits the donor to deduct all “30%” gifts at cost basis but to take the reduced gifts as a charitable deduction subject to the 50% limitation.
The election can be useful in some situations but needs to be considered carefully. The election applies to all gifts otherwise subject to the 30% limit (including carried-over contributions).
The Mechanics of Making Donations Through an Estate
Most people leave the bulk of their property through wills and living trusts. (To learn more about wills, see Nolo’s Wills area. To learn more about living trusts, see Nolo’s Living Trusts and Avoiding Probate area.) Both are simple to create. In order to name AEF among the beneficiaries, the you simply state your nonprofit’s full legal name and location (for clarity, it helps to include your tax ID number, but this isn’t required) and the nature of the gift (for example, cash or property).
It’s even simpler for a donor to name the organization as the beneficiary of property such as a bank account, life insurance policy, or retirement plan. The bank or other company usually provides a form for the donor to use.