Business owners in Pennsylvania can reduce their tax liabilities by taking advantage of a credit based on donations made to qualifying charities that support education.
A business must be approved for the credit before donating; the application for participating can be found at https://www.esa.dced.state.pa.us/Login.aspx. After receiving approval to participate in the program, you must donate within 60 days. The state allows a maximum tax credit of $400,000 and has no minimum donation requirement. Up to 90% of your donation may be claimed as a credit when to file your tax return. The percentage claimed depends on the length of your commitment (75% for a one-time donation and 90% for a two year commitment).
Qualified businesses include partnerships, S-corporations, LLC’s, and C-corporations. The business or the individual owners can apply the tax credit against the following Pennsylvania state taxes:
● Capital stock/foreign franchise tax
● Corporate net income tax
● Personal income tax
Some of the guidelines for the Educational Improvement Tax Credit
● The entity decides if the tax credit will be applied towards corporation tax and/or passed through to its partners, shareholders or members.
● The tax credit cannot be sold or assigned.
● Although any unused tax credits may not be carried forward, the entity may elect in writing prior to the due date of the entity’s tax return to pass through all or a portion of the tax credit to its owners in the taxable year of the contribution or the taxable year immediately following the year of contributions.
● To make an irrevocable election to pass through an EITC credit to partners, shareholders or members, a business should complete REV-1123, Educational Improvement Tax Credit Election Form. The entity must complete a separate REV-1123 each year the tax credit is awarded and not used in whole or in part.
● REV-1123 must be sent to the Revenue’s Bureau of Corporation Taxes by the tax return filing due date (including extensions) of the entity. However, REV-1123 must be sent separately from the entity’s tax return.
● The amount of the tax credit passed through to partners, shareholders or members is based on the percentage of income distribution from the entity receiving the tax credit.
● The tax credit may be applied to 100 percent of the entity’s liability or 100 percent of the entity owners’ liabilities.