by Eric Manus
RSM is an IMA member accountant…
Illinois Gov. Bruce Rauner signed the Invest in Kids Act in late August providing favorable corporate and individual income tax credits for qualified contributions to scholarship granting organizations beginning in 2018. A qualifying scholarship granting organization includes nonprofits that use at least 95 percent of the contributions for scholarships to lower income elementary or high school students.
The credit
The Invest in Kids credit is available for individuals, corporations, partnerships, trusts or other entities subject to Illinois income tax. The credit is allowed at 75 percent of the total amount of the qualifying contributions, limited to $1 million per taxpayer during a taxpayer year. No credit is allowed for a qualified contribution for which the taxpayer claims a federal income tax deduction. Additionally, the credit program is limited to a total of $75 million in credits per calendar year for all taxpayers.
Corporations, S corporations, partnerships, and trusts may not direct the contribution to a particular subset of schools, a particular school, a particular group of students, or a particular student. Individuals may direct contributions to a particular subset of schools or a particular school, but not to particular students.
Importantly, taxpayers must apply to the Illinois Department of Revenue prior to making the contribution to obtain a “contribution authorization certificate.” Additionally, the scholarship granting organization must obtain approval to issue certificates of receipt, which will be provided to the taxpayer after the contribution. Accordingly, contributing taxpayers will need to maintain copies of the contribution authorization certificate and certificate of receipt in their records.
Planning opportunity
The Invest in Kids Act offers generous tax credits for contributions to scholarship granting organizations and may offer excellent opportunities for high-net worth individuals or certain businesses to reduce their taxable income beginning in 2018. However, taxpayers will need to take steps before contributing to preserve their eligibility for the credit. Illinois taxpayers interested in the Invest in Kids credit opportunity should speak to their tax advisors as they plan for the next tax season.
The credit is scheduled to sunset Dec. 31, 2022.
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