The Basics of Corporate Scholarship Tax Credit Programs

  • Pennsylvania’s EITC Initiative
  • Applications Are First Come, First Serve
  • Increasing Tax Credit Potential
  • Recipient Eligibility
  • Tracking Annual Credit Opportunities

The Educational Improvement Tax Credit program (EITC) is a state-level initiative designed to encourage business contributions towards education. While there is a significant degree of flexibility in the amount and recipient of contributions, companies must follow an established application process and ensure eligibility of donations to receive credit. It’s important to note that these opportunities are subject to changing laws, so all aspects of the program can be altered by individual state governments.

See our ranking of the 30 Top Affordable Master’s in Accounting / Master of Accountancy Degree Programs.

1. Pennsylvania’s EITC Initiative

In 2001, the Pennsylvania legislature passed a law to establish the Educational Improvement Tax Credit (EITC), making it the first state to offer this type of corporate credit. The EITC provides a framework for companies to receive credit for contributions made towards scholarship funds as well as innovative educational initiatives. Several other states, including Rhode Island and Virginia, created similar programs in the years following the passage of the Pennsylvania program.

2. Applications Are First Come, First Serve

Like any budget, the money that supports annual tax credit initiatives is limited to a hard maximum. In Pennsylvania, complete applications are processed in groups based on their date of submission, according to the Pennsylvania Department of Community and Economic Development. This means some applications may be denied if the annual fund for educational tax credits has been depleted. Typically, credits can only be applied during the year the contributions were made and aren’t carried over to the next.

3. Increasing Tax Credit Potential

While credit potential and other details depend on individual state programs, applicants have a few options for maximizing their credit potential. Pennsylvania’s program allows companies to take up to 75 percent of their contribution as a tax credit, which can be increased to 90 percent if the donor agrees to make the same contribution two years in a row. Credit programs normally limit total credit opportunities for individual donors, $750,000 in Pennsylvania, but this restriction may be lifted towards the end of the year if the overall maximum hasn’t been reached.

4. Recipient Eligibility

Companies seeking tax credit for their donations must make sure that their desired recipients are eligible for the program. Scholarship giving organizations (SGOs) also have to apply to the program to receive eligibility, as well as prove sound financial practice through review by a certified public accountant. Most scholarship recipients from eligible SGOs must prove certain household income or other impairment impacting their ability to seek quality education.

5. Tracking Annual Credit Opportunities

There is no guarantee that the EITC or other tax credit programs will be available in the years ahead, so companies should plan accordingly. Business accountants must determine eligibility of donations every year and should be prepared to explore new credit opportunities if necessary. Some businesses can take advantage of short-term opportunities, like year-end increases in tax credit caps, by keeping track of program updates and acting quickly on new information.

While only a handful of states currently offer tax credit incentives to commercial organizations, this number may continue to grow in the years ahead depending on the results. The long-term success of Pennsylvania’s Educational Improvement Tax Credit program could have a lasting, meaningful impact on corporate contributions to private scholarships and the broader educational system.