written by Erik Schuster CFP®, Financial Planner

We have all asked the question, “Where does my tax money go?”  While I am not going unravel that very complicated and most likely unfortunate scenario, I am going to introduce a way you can direct your Pennsylvania state taxes.

Pennsylvania sponsors two programs that allow taxpayers to direct most of their state tax to a school, scholarship organization, or Pre-K program.  The best part, you can choose what school or program receives your money.

The programs, Pennsylvania Educational Improvement Tax Credit (PA EITC) and the Pennsylvania Opportunity Scholarship Tax Credit (PA OSTC), have been available to individuals since 2014.  They allow individuals to make gifts to educational, scholarship organizations, or Pre-K programs in lieu of PA taxes.  The money will be used to fund scholarships for underprivileged children in the community who wish to attend your beneficiary school or program.  This can be a great way to give back to your local community, alma mater, or children’s school.

What Donors Are Eligible To Give:  Individuals who pay $3,500 or more in PA state tax are eligible.  If they make a 2-year commitment, they will receive a credit of 90% towards their PA State income tax.  The remaining 10% can be used as a charitable deduction towards Federal Taxes.  Pennsylvania does have a yearly cap to the program.

What Schools Or Programs Are Eligible To Receive Benefit: Any private or religious school within Pennsylvania, scholarship organizations, pre-K programs, and other educational enrichment initiatives.  Most schools will have a dedicated financial institution or bank that gathers contributions and helps with the application process.  Schools must register for the program with the PA Dept of Education.  Almost all eligible schools are registered.

How Do Students Qualify: Children are eligible for scholarships if their household incomes are not more than $96,676 plus $17,017 for each child in the family.  For example, a family with one child must have an income below $113,693.  Those figures adjust every year for inflation.

Example Of How This Affects PA Taxes Due:

This program can be a great way for you to direct your PA taxes to the local students and allow them to attend the schools that mean something to you.  Always ask your advisor if this program fits your financial plan.  It is a great way to give back!