Education Improvement Scholarships Tax Credits Program
In 2012, the Virginia General Assembly passed legislation (2012 Acts of Assembly, Chapters 731 and 842) that established the Education Improvement Scholarships Tax Credits Program. The program provides state tax credits for persons or businesses making monetary donations to approved scholarship foundations that provide scholarships to eligible students for qualified educational expenses incurred in attending eligible nonpublic schools.
The tax credit is equal to 65 percent of the monetary donation, and may be claimed against the individual income tax, corporate income tax, bank franchise tax, insurance premiums license tax, or tax on public service corporations. Individuals and married persons may not be issued more than $50,000 in tax credits in a taxable year; however, this $50,000 limitation does not apply to credits issued to any business entity, including a sole proprietorship. A monetary donation must be at least $500 in order to qualify for the tax credit program. Any unused tax credits may be carried over for the next five succeeding taxable years or until the total amount of credit has been taken, whichever is sooner.
To be eligible for participation in the Education Improvement Scholarships Tax Credits Program, scholarship foundations must apply to the Department of Education to be approved to receive and administer tax credit-approved funds. Any donations that are made prior to the date the application is approved by the Department of Education will not qualify for the tax credit. A scholarship foundation must be a nonstock, nonprofit corporation that is exempt from taxation under IRC § 501(c)(3) and established to provide financial aid for the education of students residing in the Commonwealth. An organization that was established for a charitable purpose other than providing financial aid for education may still qualify for the tax credit program if its articles of incorporation or equivalent documents, or its governing rules, such as its bylaws, have been legally and validly amended to also specifically state that it will provide financial aid for the education of students residing in the Commonwealth.
A current list of approved scholarship foundations is available on the Department of Education website.
A scholarship foundation, in awarding scholarships from tax credit-derived funds, must provide the Department of Education assurance that the applicant foundation will:
- provide scholarships for qualified educational expenses only to students whose family's annual household income is not in excess of 300 percent of the current poverty guidelines or to eligible students with a disability;
- not limit scholarships to students of one school; and
- comply with Title VI of the Civil Rights Act of 1964, as amended.
Individuals and businesses seeking to make a monetary donation to an eligible scholarship foundation or a scholarship foundation on behalf of such person must request preauthorization for a specified tax credit amount from the Superintendent of Public Instruction. The preauthorization notice issued to the donor by the Department of Education must accompany the monetary donation from the donor to the scholarship foundation. The scholarship foundation must, within 20 days, return the notice to the Department of Education certifying the donor, the amount of the monetary donation, and the date it was received from the donor. Preauthorization notices not acted upon by the donor within 180 days of issuance will become void.
The credit will be allowed to be claimed for the taxable year following the year of the monetary donation. For those taxpayers making estimated tax payments, the credit would be prorated equally against estimated tax payments made in the third and fourth quarters of the taxable year in which the credit may be claimed, and the final tax payment. When claiming the tax credit for the appropriate taxable year, an individual or business must submit with the applicable tax return verification from each scholarship foundation to which monetary donations have been made and the tax credit certification document issued by the Department of Education.
Tax credits will be awarded by the Department of Education to donors making monetary donations to eligible scholarship foundations on a first come, first serve basis. The total amount of tax credits that may be granted in each fiscal year is $25 million.
- Preauthorization Form (Word) – Use this form to request preauthorization for a specified tax credit amount.
- Approved Scholarship Foundations (PDF) – Revised May 10, 2013
- Summary of Preauthorized Tax Credits through May 3, 2013 (PDF)
For Scholarship Foundations
- Application for Approval as a Scholarship Foundation (Word)
- The following links provide information related to the requirements referenced in § 58.1-439.25 and § 58.1-439.28 (C, E, and G) of the Code of Virginia.
Todd L. Gathje, Ph.D., Tax Credit Program Specialist