Thursday, June 22, 2017

Georgia Qualified Education Expense Tax Credit

In 2008, the Georgia General Assembly passed the Qualified Education Expense (QEE) Tax Credit bill and it was signed into law by then Governor Perdue. This law provides for the creation of student scholarship organizations (SSOs) to which Georgia individuals and corporate taxpayers can contribute in exchange for a state income tax credit and potential federal charitable income tax deduction. Please do not confuse this with your child’s tuition if they attend one of the participating schools – taking advantage of this donation tax benefit will not help reduce their tuition. What this does mean is that you can potentially offset your Georgia tax liability dollar for dollar for making a charitable contribution to a participating school, for which you will also receive a federal charitable donation deduction. That sounds like a win-win-win to most of us. There are some key items to note, discussed below, but overall, this program is increasingly popular for a reason.

To get started, you must submit a tax credit application to the qualified Georgia SSO of your choice. And the time to do that is now. Two of the more popular SSOs, The Georgia Goal Scholarship Program, and Grace Scholars began and will begin accepting applications on June 1 and July 1, respectively. You can apply anytime from the SSO’s opening day through December, 2017.

Collectively, all applications received during 2017 are then submitted by the SSO to the Department of Revenue (DOR) on January 1, 2018 at which point the DOR will dole out the tax credits. For 2017, there were $58 million dollars in credits that were used up on January 1st! So, it is imperative that you get your application in to your SSO before the end of the year. It used to be a first-come, first-served program, but in order to equalize the credit distribution, they consider all applications turned in on January 1st together. This means that you most likely will not be approved for your full contribution, but you should be approved for a portion of it.

By the end of next January, you should find out your approved amount and then you must make your payment within 60 days to validate your contribution. This allows you to take your charitable donation and Georgia credit for the 2018 tax year when you file your returns in 2019. Seems like the deduction and credit is a long way away from your submitting your application today but this program has been so popular, it is necessary to begin the process this far out. If you went through the process last year, or this year, then you most likely just utilized your 2016 credit and you will get to utilize your 2017 credit when you file your returns in early 2018 – around the same time you are making your 2018 donation.

If you are new to this game, or even if you are not and just need a refresher, there are some things to note:

  1. There are limitations on the amount that you can take as a tax credit. These are the limitations:
    • Single individual or head of household – up to $1,000
    • Married couple filing a joint return – up to $2,500
    • Married couple filing a separate return – up to $1,250
    • S corporation shareholder, LLC member, or partnership partner – up to $10,000
    • C corporation or Trust – up to 75% of annual Georgia income tax liability
    And like we mentioned above, these are the limits for which you can apply. Given the popularity of the program, you will likely only be approved for a portion of your application amounts. But something is better than nothing.
  2. You can specify which school you want to receive your donation from an approved list. The SSOs maintain a list of qualified schools from which you can choose. And the school may be able to tell you if they are participating and if so which organization to use.
  3. Keep in mind, that you are applying for an amount to offset your Georgia tax liability. If your contribution amount exceeds your Georgia income taxes, you can carry your credits over for up to 5 years.
  4. You are entitled to a federal charitable contribution for your donation. And for anyone that typically pays alternative minimum tax (AMT), charitable donations are one of the only itemized deductions that are fully allowable under the AMT calculation. You must adjust your Georgia charitable deductions so that you are not double dipping, but hey, you are getting a Georgia tax credit which is even better.
  5. If you pay Georgia estimated taxes or have Georgia withholding, you can most likely adjust those amounts to reflect any approved tax credit amount to cover the contribution cost.
Those are the basic details in a nutshell. There are definitely more complex issues that we would be happy to review with you on an individual basis. For example, if you are an owner of a pass-through entity and want to make sure that you can apply for the full $10,000, let us know. And by the way, if both spouses are members of pass-through entities generating substantial income, you can potentially apply for a $20,000 credit.

In our opinion, this is a great way to check the box for a charitable donation to assist with school scholarships while offsetting your potential Georgia income taxes. Please do not hesitate to contact us with additional questions or if this is something that could be beneficial for you. We look forward to hearing from you.

Best Regards,
Danielle Van Lear

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