By Kenneth H. Bridges, CPA, PFS March 2015
Georgia has a tax credit program which permits individuals and businesses to receive a credit against their Georgia tax for contributions to qualified student scholarship organizations (SSOs). An SSO is a 501(c)(3) organization which allocates at least 90% of its annual revenue for scholarships to enable students in grades K through 12 to attend a Georgia school of their parent’s choice.
Married couples can claim a credit of up to $2,500, singles a credit of up to $1,000, and corporations a credit up to 75% of the amount of their Georgia tax liability. Legislation enacted in 2013 increased the amount of the credit to up to $10,000 for individuals with income from a flow-through entity (e.g. S-corp, LLC or partnership); with the limitation that the amount of the compensation) from the flow-through entity. For a married couple, the amount can be up to $20,000, if each has sufficient flow-through entity income.
This is quite a deal, as the combined tax benefit from the Federal income tax deduction and the Georgia credit can actually exceed the amount of the contribution made.
For those who would otherwise be able to equally benefit from a Federal deduction of their state income tax paid (e.g. those not in the “alternative minimum tax” posture) or a charitable donations deduction (i.e. not subject to the percentage limitations on charitable contributions), their net after-tax economic position is relatively the same whether they make the donation or not (except that you do not get a deduction against Georgia taxable income for the amount of the donation; just the credit). In this regard, the State of Georgia is essentially giving you the ability to redirect dollars that would otherwise go to the state to a student scholarship organization without any after-tax economic cost to you. For those who are in the alternative minimum tax posture (and thus not deriving any Federal tax benefit from the deduction of their state income tax), they can essentially profit from the donation.
There is a $58 million per year cap on the amount of credits that the Georgia Department of Revenue can award. You must pre-qualify your credit by sending a form to the DOR for approval before making your donation to the SSO. The cap has been reached each of the past five years, and earlier and earlier each year (leaving some who wished to participate unable to do so). For 2015, the cap was reached (and exceeded) on January 1, the first day that GA DOR would accept applications. Consequently, GA DOR has announced that each business and individual who applied on January 1, 2015 will be permitted a credit for 63.338% of the amount for which they applied and would otherwise be eligible if the cap had not been exceeded.
Kenneth H. Bridges, CPA, PFS is a partner with Bridges & Dunn-Rankin, LLP an Atlanta-based CPA firm.
This article is presented for educational and informational purposes only, and is not intended to constitute legal, tax or accounting advice. The article provides only a very general summary of complex rules. For advice on how these rules may apply to your specific situation, contact a professional tax advisor.