Educational Improvement Tax Credit (EITC) Frequently Asked Questions
What is the Educational Improvement Tax Credit Program?
The Educational Improvement Tax Credit (EITC) Program authorizes tax credits for businesses that make contributions to Educational Improvement Organizations (EIOs) or scholarship organizations. The program is administered by the Pennsylvania Department of Community and Economic Development (DCED).
What is an Educational Improvement Organization (EIO)?
An EIO is a non-profit organization approved by DCED for participation in the EITC program. To become an EIO, the non-profit must demonstrate to the DCED how its programs improve educational opportunities for children. Beginning with Books – Center For Early Literacy has been designated as an eligible Educational Improvement Organization.
Who can participate?
Any business that pays any of the following Pennsylvania taxes:
- Corporate Net Income Tax
- Capital Stock Franchise Tax
- Bank and Trust Company Shares Tax
- Title Insurance Company Shares Tax
- Insurance Premiums Tax
- Mutual Thrift Institutions Tax.
Note that pass-through entities such as S corporations and limited liability companies (LLCs) are eligible to participate, in addition to C corporations.
Why should businesses participate?
Businesses can significantly reduce their liability for Pennsylvania taxes while they support organizations, like Beginning with Books, which enhance educational opportunities for children.
When does the tax credit program begin?
Timing is critical! The program year runs July 1, 2010 – June 30, 2011. The application must be submitted to DCED on July 1, 2010 (but NOT before that date).
Please note: Applications that arrive at the DCED prior to July 1ST will be disqualified! Applications for tax credits are processed by DCED on a first-come-first-served basis. Last year, due to the popularity of the program, all designated tax credit funds for Educational Improvement Organizations were allotted on the very first day. Therefore, it is very important that your application be filed ON July 1, 2010.
How many tax credits can a business apply for and how are they used?
The EITC program provides companies with a 75% tax credit for donations to an educational improvement organization. The tax credit increases to 90% if the company commits to making the same donations for two consecutive years. A business paying taxes in Pennsylvania and contributing to an EIO can receive up to $300,000 in tax credits annually.
Here is an example. If Business X owes $50,000 in Pennsylvania taxes and commits to make a donation to Beginning with Books for one year, Business X may contribute up to $37,500 (75% of $50,000) to Beginning with Books in year one and pay the remaining $12,500 to the Commonwealth of Pennsylvania.
If Business X commits to make the same donation for two consecutive years, then it may contribute up to $45,000 (90% of $50,000) to Beginning with Books and pay the remaining $5,000 to the Commonwealth of Pennsylvania, in each of the two years.
How do businesses apply for the tax credit?
The simple steps are included in the Application Process Guidelines.
Who can answer my questions?
If you have any questions about Pennsylvania’s EITC program, please contact Linda Acheson Pool, the Development Director of Beginning with Books, at 412-361-8560, or pooll@mybwb.org.