PA's EITC Tax Credit Program Keeps Getting Better

June 8, 2018

The state of Pennsylvania recently clarified what category of individuals will be eligible to obtain PA Educational Improvement Tax Credits and it is welcome news.

PA allows a 90% tax credit against your state income taxes by making a two year commitment to the program. Say you were willing to donate $10,000 annually for two years. You get a $9,000 tax credit. As a result, you will have made a $10,000 donation to the institution(s) of choice for a cost of $1,000. As you may know, starting in 2018, state and local income taxes combined with real estate taxes are subject to an annual federal deduction cap of $10,000 for individuals. For someone who will continue to itemize their deductions (in lieu of claiming the IRS standard deduction), a charitable deduction in lieu of paying state income taxes may become quite valuable. In fact, it is possible that the 90% PA tax credit combined with the federal tax benefit of making the contribution (vs. paying additional state income taxes) could EXCEED the cost of your donation.

Individual business owners of pass-through entities (e.g. S-Corp., LLC, Partnership) can obtain tax credits by having the entity apply for the credit. In addition, individuals are allowed to obtain tax credits by funding a special purpose entity LLC (contact us for a referral to one) if such individual is an "owner or employee of another business firm." There has been confusion on what that clause means. Recent guidance we obtained, issued by the PA Department of Revenue, indicates that an individual who owns publicly traded stock of a corporation subject to PA tax is an owner of a business firm and thus eligible to be a member of a special purpose entity. This may open up the participation door for individuals who are retired or who have no earned income but do have investments.
As stated before, this is a great tax planning idea that can help children in need. To me, that is a win-win. Feel free to contact me or your Sisterson representative for further information.

Contact Bill Richardson at 412.594.7708 or with questions.