Illinois Tax Credit Program to Benefit Participating Taxpayers, Schools, and Students

Non-public schools have an opportunity to receive funds through the newly effective Illinois “Invest in Kids” Act. The Act offers an innovative way for qualified Illinois private schools to receive additional funding, for supporters of these schools to claim an income tax credit against their 2018 tax liability, and for Illinois students to receive scholarships. 

How can your non-public school take advantage of this opportunity?  First, the school must take steps to register with the state of Illinois.  Second, taxpayers seeking to direct tax credits to the school must take proactive steps to register and to donate to “SGOs,” which are scholarship-granting nonprofit Section 501(c)(3) organizations that are approved by the Illinois Department of Revenue to issue tax credit certificates.  Taxpayers also may designate a specific school as the recipient.  So be sure to tell your school’s supporters to act quickly - the available tax credit pool is limited! 

The Background

The Invest in Kids Act resulted from a political compromise reached in Springfield in August 2017 for public school funding, allowing up to $75 million per calendar year in available tax credits to fund a scholarship program for students in certain private schools. This maximum dollar amount is allocated among five geographic regions within Illinois.  Tax credits are awarded to taxpayers on a first-come, first-served basis. The legislation is scheduled to sunset after five years.

 Eligible students must initially have family income of no more than 300% above the federal poverty level, and they may already be enrolled in private schools.  Eligible schools must be “recognized” by the Illinois State Board of Education, as listed here.  To qualify, your school must be recognized by the Illinois State Board of Education. The list of qualified schools for 2017-2018 has been published here.

How Your Supporters Can Help

Parents, teachers, and other individuals who are interested in supporting your organization through this tax credit program may wish to initially determine their expected Illinois tax liability for 2018.  If they follow up with making a contribution under this program, then they may further wish to adjust their Illinois tax withholding for 2018, and to otherwise consult with their accountant for related tax planning.

To claim a tax credit, your supporters will need to complete the following steps:

  1. Request a “Letter ID” from the Illinois Department of Revenue (DOR), in order to set up a “MyTaxIllinois” account. See this handout for more information.
  2. Upon receipt of the Letter ID, go to http://mytax.illinois.gov to set up an account with the DOR’s free online tax portal.
  3. Log into the MyTaxIllinois account and apply to the DOR for approval to make a contribution.  The application will ask for the desired SGO’s name and the region for the taxpayer’s contribution.  DOR approval will be granted automatically so long as the regional and statewide thresholds have not been met.  Upon approval, usually within a few weeks, the taxpayer will receive a “Contribution Authorization Certificate.”
  4. Within 60 days from the Certificate’s issuance, the taxpayer must provide a copy of the Certificate plus the financial contribution to the SGO.  In turn, the SGO should issue a “Certificate of Receipt” within the following 30 days.
  5. Contributing taxpayers may claim their credit on their tax return for the year of contribution (i.e., a 2018 contribution on the 2018 tax return, filed in 2019).  If a taxpayer’s credit exceeds his or her tax liability for the year of contribution, the excess credit may be carried forward to future years’ tax liability.

The Story of Jack and Jill Taxpayer

To illustrate, consider a husband and wife named Jack and Jill who file jointly and expect their 2018 Illinois tax liability to be about $3000.  Instead of planning to pay such liability to Illinois, they decide to direct such funds toward private education.  They even have a favorite school in mind, which is listed on the Illinois State Board of Education’s website within Cook County Region 1 and offers scholarships through “My Favorite School Cause SGO.” 

Jack and Jill create an account with MyTaxIllinois and apply to make a contribution to My Favorite School Cause SGO.  Because the available tax credit is limited to 75% of their contribution, they must contribute $4,000 total to the SGO in order to claim their intended $3,000 tax credit.  Upon approval of their application, Jack and Jill receive their Contribution Authorization Certificate from the DOR.  A few days (or weeks) later Jack and Jill send a copy of the Certificate and their $4000 check to the SGO.  The SGO then sends them a receipt.  So long as Jack and Jill do not take any federal income tax deduction for this contribution, and assuming that their Illinois tax liability for 2018 is $3000 or more, they may claim the full $3000 tax credit on their Illinois tax return for 2018.  They also may wish to adjust their 2018 Illinois tax withholding, since their Illinois tax liability should be significantly reduced – if not eliminated entirely.

Key Tax Aspects

Your organization’s supporters must remember that this benefit is a state tax credit, not a tax deduction. Individuals are still free to make other charitable contributions to nonprofit schools and to receive federal income tax deductions for such gifts, to reduce their federal taxable income.  The Invest in Kids Act allows individuals and businesses to donate funds to an SGO in order to financially support private education, and then to take a tax credit equal to 75% of such donation on their Illinois income tax return.  This significant tax benefit is conditioned, however, on not claiming a federal income tax deduction for the same contribution.  In other words, taxpayers may not double-dip and take a federal charitable income tax deduction for their donation as well – only the state tax credit may be taken, which is equal to 75% of the contribution.  Such contributions are to be made to SGOs, and taxpayers may specify which schools (but not students) they wish to benefit.

Note that this tax benefit is for 2018.  Donations thus should be made in 2018, with tax reporting to follow in 2019 (for 2018 taxes).  To date, over half of the available tax credits have reportedly already been claimed!  Accordingly, interested schools should act quickly to get on the approved list – and taxpayers should act soon as well to claim their tax credits.