State Innovation – Tax Credits

The Pennsylvania legislature enacted the Educational Improvement Tax Credit Program in 2001. In 2015, this program worked with 2,500 businesses and generated over $100 million in tax credits. The program offered businesses tax credits to donate to three types of programs. The first program provided $60 million in tuition assistance to K-12 schools. The second program provided $30 million to fund academic programs in K-12 schools. The third program provided $10 million to fund preschool programs for families with limited income.

Total Tax Credits Given in 2015 (in millions of dollars)

Estimate of Number of Businesses Receiving Tax Credits in 2015

Qualifying Organizations

To qualify to receive a donation from a business’s tax credits, the organization needs to be a 501(c)3 non-profit. For a preschool program to qualify for the funding, they need to have their curriculum aligned to the kindergarten curriculum standards for the state.

Eligible Purposes

Businesses may receive a tax credit equal to 100% of the first $10,000 contributed during the taxable year and up to 90% of the remaining amount contributed, up to a maximum of $200,000 annually. Unlike other tax credits, there is no multi-year commitment.

Funds are distributed to pre-kindergarten programs throughout the state. The business who holds the tax credit can choose the organization(s) to which they want to donate. Most organizations choose to keep their donation local to fund programs that directly benefit the kids in their community.

The Pennsylvania Department of Community and Economic Development operates this program through an application process for businesses. Rather than sending tax dollars out of local counties, business can ensure their tax dollars stay in their community by using this tax credit program. When applications exceed the budgeted amount of credits available, the Department of Community and Economic Development holds a lottery and the winners are awarded the tax credits for that year. Scholarship and non-profit organizations apply yearly to become a qualified program that can receive the funds.

Of Note

The total amount granted by the tax credit has increased every year since its inception in 2001.