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Legislation Affects Tax Credit Scholarship Program

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TaxCredit_BusinessPagesIn light of recent legislation changes that affect the Georgia Qualified Education Expense Credit, those who make contributions to student scholarship organizations (SSOs) may want to plan now for their 2014 giving strategy.

According to Ken Schuckers, Jr., a director at Bennett Thrasher and member of the#Firm”s tax credits and incentives practice, this state tax credit has become very popular as Georgia citizens and corporations look to improve education standards for its students.

In May, Governor signed into law House Bill 283 that#makes significant changes to the Georgia Qualified Education Expense Credit previously enacted in 2008.#Schuckers#highlights key aspects of this legislation below:

  • This new legislation increased the annual cap on taxpayer contributions to student scholarship organizations (SSO) from $50 million to $58 million and prohibits donors from designating their contribution to any particular individual. The law also ensures more dollars reach eligible students by restricting the amount of money available for administrative costs of the SSO.
  • Where the previous law required at least 90 percent of the donations be allocated to scholarships, the new law has a sliding scale ranging from 90 percent to 95 percent depending on the total amount of funds contributed.
  • In addition, the law requires more transparency from the SSO by requiring them to report to the Department of Revenue by January 12 of each tax year the number of scholarships they provide, the number and amount of donations they receive, the number of students awarded scholarships in four different income ranges and a list of all donors.
  • HB 283 provides emphasis by adding a clause requiring SSOs to consider the financial needs of students in awarding scholarships. It also permits shareholders in “S”# Corporations and partners in limited liability companies and partnerships to donate up to $10,000 per tax year.# As in previous years, individuals can donate up to $1,000, married couples filing jointly can donate up to $2,500, and corporations can donate up to 75 percent of their income tax liability.
  • In addition to receiving the Georgia Qualified Education Expense Credit, the donor will also qualify for a federal charitable contribution deduction.# This charitable contribution will be an add-back for Georgia income tax as the donor cannot take both the tax credit and itemized deduction.
  • The credit is on a first come first service basis, and according to the DOR, the 2013 contribution cap was reached on May 9, 2013. Therefore, the window is open to plan for 2014 contributions.