In August of 2017 the State of Illinois legislature passed a new act called the “Invest in Kids Act of 2017”. This Act created an Illinois income tax credit for taxpayers who make authorized contributions to qualifying Scholarship Granting Organizations (SGO), which are registered with the Illinois Department of Revenue (IDOR) by December 31, 2017. Starting January 2, 2018 taxpayers can apply for the credit, which would be reported on their 2018 state income tax return. The maximum credit the State will award each year is $75 million, representing total contributions of $100 million, with a contribution limit of $1 million per taxpayer. Couples who are married and file a joint tax return are considered one taxpayer for purposes of this Act.
SGO’s are designed to provide scholarship opportunities for eligible Illinois students to attend non-public schools in Illinois. The Illinois State Board of Education will provide a list of non-public schools recognized under section 2-3.25o of the School Code to the Illinois Department of Revenue each year. This list will be used to allocate the credits amongst the 5 regions in the state. The regional boundaries are the same as those of the Illinois Appellate court districts. You can see the 5 regions at the following link: http://www.revenue.state.il.us/InvestInKids/Regions.htm
SGO’s must be non-profit and tax exempt under Section 501(c)(3) of the Internal Revenue Code. After approval by the IDOR, SGO’s can receive qualified contributions from individuals and businesses, which are then disbursed in the form of scholarships to eligible students.
An eligible student is a member of a household whose federal adjusted gross income the year before he or she initially receives a scholarship under this program, as determined by the Department, does not exceed 300% of the federal poverty level and, once the child receives a scholarship, does not exceed 400% of the federal poverty level.
As of Dec. 1, 2017, these federal poverty guidelines are as follows:
In addition, the student must be eligible to attend a public elementary school or high school in Illinois in the semester immediately preceding the semester for which he or she first receives a scholarship, or is starting school in Illinois for the first time when he or she first receives a scholarship.
For taxpayers to become approved for the credit they must first apply to the IDOR, starting January 2, 2018, through the free, online tax portal at tax.illinois.gov. Approval is automatic as long as the regional and statewide thresholds have not been met. Taxpayers must include the name of the SGO and indicate the region the contribution will benefit. Additionally, the taxpayer must make their contribution within 60 days of receiving approval from the IDOR.
While the application process does not open until January 2, 2018, residents are required to have an account on mytax.illinois.gov to apply. If a taxpayer does not have an account, they must request a Letter ID to begin the process; the letter ID is generally received within 7-10 days. Taxpayers can access the Letter ID application by choosing the “Individuals” tab on mytax.illinois.gov and choosing the link under the “Miscellaneous” section.
This IL credit is a non-refundable tax credit, however unused credits will carry forward for up to 5 tax years.
In an interesting twist, the Act specifies that taxpayers cannot claim the tax credit if they deduct any portion of the contribution on their federal income tax return, so taxpayers will need to determine if the Illinois credit or the federal tax deduction provides a better result. If the new tax reform changes pass at the federal level, donations to this program will offer an even larger benefit versus a regular charitable contribution. Note that taxpayers who pay Alternative Minimum Tax (AMT) will see a significant benefit regardless of whether the proposed changes are passed.
More information on this Act can be found on the Illinois Department of Revenue website, or please feel free to contact us with any questions.
About the Author - Mitchell M. Cohen is a Certified Public Accountant (CPA), a Certified Fraud Examiner (CFE) a Forensic Certified Public Accountant (FCPA) and a Certified Forensic Litigation Consultant (CFLC) with over 26 years of accounting and tax experience. Mr. Cohen is a Shareholder with ECS and has been with the firm since 2003. Mr. Cohen’s expertise includes expert guidance in many areas such as strategic business planning, financial negotiation, accounting system design, personal and corporate tax planning, IRS audits, financial statement compilations, reviews and audits in the areas of for profit, governmental and not-for-profit entities, manufacturing, distribution, interior design, catering companies and restaurants among many types of closely held businesses. Mr. Cohen has also conducted numerous forensic investigations in the areas of divorce, loss of income calculations, piercing the corporate veil, and conversion. Mr. Cohen is also a testifying expert witness.