Pennsylvania has two state tax-credit programs that allow businesses to invest in educational institutions.
The more common of the two is the educational improvement tax credit. The Pennsylvania legislature approved the EITC in 2001. In the early stages of the program, businesses had the opportunity to partner with educational institutions to provide either project-based or scholarship-based support.
The overall credit program has been successful, and in 2012 the scholarship opportunity was separated out and expanded to become the opportunity scholarship tax credit. The OSTC, with up to $50 million in approved tax credits available for businesses, focuses on improving educational opportunities for students. Unlike the EITC program, where the tax credit funds are assigned rapidly, the OSTC still has funds available for businesses looking for an alternative method to fulfill their tax obligation.
The OSTC provides benefit in the following three areas:
• Pennsylvania tax credit on the corporate or individual level.
• Federal tax deduction opportunity.
• Aid to students and communities in need .
Corporate and individual state tax credit: A business can review the list of approved scholarship funds provided on the Pennsylvania Department of Community and Economic Development website (dced.state.pa.us). Once a fund is identified, a credit application is submitted to the DCED. OSTC applications can be submitted any time after July 1, and credits are issued on a first-come, first-served basis.
Businesses electing to make a one-year contribution will receive a tax credit up to 75 percent of the contribution. A business can increase the credit to 90 percent of the contribution if it is willing to commit to two years of contributions. Once approved, the business has 60 days to make the contribution and provide support to the DCED. After all the support documentation is submitted, the credit will be assigned to the business’s Pennsylvania tax account.
As outlined below, the credit can be used to offset both corporate and personal income taxes. Any unused credits at the corporate level can be passed through to the shareholders, members or partners. The business entity must be taxed as a partnership or S corporation for the credit to pass through to the business ownership.
The credit may be applied to the following state taxes: