What if you could tell your state government exactly how to spend your tax money?
In Pennsylvania, you can (with caveats).
The Pennsylvania Educational Improvement Tax Credit (EITC) program allows businesses and individuals to receive tax credits for contributions to the school of their choice. The rules are slightly different depending on whether you are a business or an individual, but in general, you can donate up to the amount of your current-year state tax liability and receive a tax credit for the same tax year, with all EITC donations going directly toward need-based student scholarships. This article provides an overview of how businesses and individuals can participate in the EITC.
If You Are a Business
- Eligibility: Businesses authorized to operate in Pennsylvania that are subject to one or more of the following taxes can participate: personal income tax, capital stock/foreign franchise tax, corporate net income tax, bank shares tax, Title Insurance and Trust Company shares tax, insurance premium tax (excluding unauthorized, domestic/foreign marine), mutual thrift tax, malt beverage tax, and/or surplus lines tax.
- Process: Businesses must apply online on the Pennsylvania Department of Community and Economic Development (DCED) website. Once the application is approved, the business can donate to an approved scholarship organization (SO), educational improvement organization (EIO), or pre-kindergarten scholarship organization (PKSO). Approved organizations can be found on the DCED site.
- Tax Credit and Deductions: Donors receive a tax credit equal to 75% of their contribution up to a maximum credit of $750,000 per taxable year. This tax credit is increased to 90% when the donor agrees to contribute equal amounts for two consecutive years. For contributions to PKSOs, a business can receive a 100% credit on the first $10,000 donated and a 90% credit on the remaining amount donated, up to a maximum credit of $200,000 per taxable year.
- Example: XYZ company expects to have a tax liability of $150,000 in 2025 and decides to donate $150,000 in both 2025 and 2026 to one of its local community schools’ approved SOs. In both 2025 and 2026, it would receive a tax credit of $135,000, directly offsetting its tax liability.
- Example: ABC company expects to have a tax liability of $200,000 in 2025. Many of its employees have young children, so it decides to donate $200,000 to its local PKSO. In 2025, it will receive a tax credit of $181,000 ($10,000 at 100% and $190,000 at 90%).
If You Are an Individual
- Eligibility: Individuals who pay Pennsylvania income tax are eligible for the program when they contribute through a special purpose entity (SPE). There may be minimum contribution amount requirements depending on which SPE you contribute through.
- Process: Individuals must utilize the SPE to donate funds; if you have a specific school in mind you would like to donate to, ask the school which SPE they recommend contributing to. Then, when applying to the SPE, you can note which school you would like to receive your contribution. The SPE will then distribute these donations as scholarship funds to your noted school (or any eligible schools if you did not note one in particular). Speak to your tax professional to determine how much you should contribute based on your individual state tax liability.
- Tax Credit and Deductions: Donors receive a tax credit of 90% of their contribution for that taxable year, and the remaining 10% may be used as a deduction on their federal return (speak to your tax professional to see if you qualify for the 10% deduction).
- Example: Sarah expects to have a Pennsylvania state tax liability of more than $10,000 for the current year (2025). She decides to participate in the EITC program for her daughter’s school and contributes $10,000. She would receive a tax credit of $9,000, which would directly offset her 2025 PA tax liability, and a potential deduction of $1,000 on her 2025 federal return.
As always, it is important to speak to your individual or business tax professional to help ensure you are up to date on any changes and deadlines in the EITC regulations, and to make sure the donation and tax credit are appropriate for your tax situation. The EITC can be a great way for individuals and businesses to give back to local schools and provide need-based scholarship money.
If you have questions about the Pennsylvania EITC program or need assistance, please reach out to a professional at Forvis Mazars.