What is the Education Improvement Tax Credit?
The Education Improvement Tax Credit (EITC) is a credit that can be awarded to businesses for making contributions to Educational Improvement Organizations and used against Pennsylvania income tax. Businesses can donate up to $750,000 each year to EITC-eligible organizations (Educational Improvement Organizations), and then claim 75 percent of that donation as a credit that offsets their state tax bill. The credit can increase to 90 percent if they commit to donating funds for two consecutive years.
SWAN: Scaling Walls a Note at a Time is a state-certified Educational Improvement Organization.
How Does My Business Make an EITC Approved Donation?
To make a contribution to SWAN: Scaling Walls a Note at a Time and receive the Education Improvement Tax Credit, you must first register with the PA Department of Community & Economic Development. All first-time applications must be made on the day of July 1*. To do this, go to dced.pa.gov and click on the Programs and Funding button, then Single Application from the drop-down. If you have made an EITC contribution before, you can log in on this screen. If not, click on “Register” and follow the steps to make an account. There are walkthroughs available on the login page to assist you in registering and applying if needed. Once registered, you can search for SWAN and apply for the EITC under that name. Once in the application, follow the steps through the application, and at the end, you will receive a confirmation. You will receive a notification letter from the DCED informing you that you were approved. Once approved, you must make the contribution within 60 days and you must provide proof to the DCED within 90 days that you made the contribution within that time frame.
*Please note that the state of Pennsylvania has a limit on how many tax credits can be awarded. Therefore, it is very important to have your application work completed prior to July 1st so that you can simply click the submit button as early as possible on the day of July 1st. Tax credits are awarded on a first-come, first-serve basis and typically all available credits are awarded and the limit is exhausted on July 1st.
How Does This Benefit My Business?
The benefits of making a contribution through this program include the following:
- A 75% credit of the contribution made, up to a maximum of $750,000 per taxable year for a one-year commitment
- A 90% tax credit of the contribution made, up to a maximum of $750,000, if you agree to provide the same contribution for two consecutive tax years.
- In addition to the credit, the excess not covered by the credit will be deductible from taxable income
- If a contribution of $10,000 is made, and the effective tax rate is 40%, you can get a $400 additional deduction from the $1,000 not covered by the EITC, making the effective return on the contribution 94%
- If your entity is a pass-through, an irrevocable election can be made in writing to pass the EITC to its owners in the year the contribution was made, or in the taxable year immediately following the year it was made
- The credit is passed through based on the percentage of income distribution to the owners
- A separate election must be made every year the credit is awarded
- If the credit is not used in the taxable year the contribution was made, it will not be able to be sold, assigned, carried forward or back, and is not refundable or transferable, except if the above-mentioned election is timely made.