Illinois Invest In Kids Act: Tax credits for contributions to scholarships

December 27, 2017

By Keith J. Habel, CPA
Partner, SALT Practice Leader

Approved taxpayers can receive state income tax credits for contributions to Scholarship Granting Organizations (SGOs) in Illinois. This Q&A breaks down the details.

What is the Invest in Kids Act?

Public Act 100-0465 created the Invest in Kids Act (35 ILCS 40/1). This Act allows income tax credits for taxpayers who make authorized contributions to a Scholarship Granting Organization (SGO). The SGOs, in turn, provide scholarships for eligible Illinois students to attend non-public schools in Illinois.

What is a Scholarship Granting Organization?

SGOs are non-profits who, after approval by the department, can receive qualified contributions from individuals and businesses to be disbursed to qualified, non-public schools in Illinois in the form of scholarships to eligible students.

What are the requirements to be a Scholarship Granting Organization?

SGOs must be exempt from tax under Section 501(c)(3) of the Internal Revenue Code. In addition, they must use at least 95% of the qualified contributions received for scholarships; provide scholarships to students according to the Act; deposit and hold the qualified contributions and any income derived from the contributions in an account that is separate from the organization’s operating fund or other funds until contributions or income are withdrawn for use; and meet additional requirements under the Act. SGOs must be approved by the department before issuing Certificates of Receipt (CORs) to donors.

Where can I find a current list of approved Scholarship Granting Organizations?

A list of approved SGOs and a wealth of other information concerning the program’s funding, eligibility, benefits and regulations can be found at the Invest in Kids Act website located here.

How much credit can I receive for making a qualified contribution?

Illinois taxpayers who are approved can receive state income tax credits in the amount of 75% of their total qualified contributions made to one or more SGOs during a taxable year. Credits cannot exceed $1 million per taxpayer, per year.  Individuals who are married and filing a joint return are considered one taxpayer for purposes of making qualified contributions.

How do I get approved for the credit?

The department can issue a total credit amount statewide of up to $75 million in tax credits per calendar year.  These credits are awarded on a first come, first serve basis, so early approval is favorable.

Taxpayers must first apply to the department for approval to make such contributions. You must apply online through MyTax Illinois, the state’s free, online tax portal, at https://mytax.illinois.gov.  Approval is granted automatically as long as the regional and statewide thresholds have not been met. Taxpayers must include the name of the SGO and the region the taxpayer directs their contribution to benefit.

When can I submit an application to be approved for the tax credit?

The Invest in Kids tax credit application for individual and business taxpayers will be available through MyTax Illinois on Jan. 2, 2018, and tax credits are awarded on a first-come, first-served basis. Approved credits may be taken, beginning with the filing of your 2018 income tax return.  You must apply in January of each subsequent year to be approved for a new Invest in Kids tax credit. If you are claiming unused credits from a prior year, approval for use of these credits is not required.

What do I need in order to claim my credit?

Once approved, taxpayers are issued a Contribution Authorization Certificate (CAC) by the department. Within 60 days, you must provide a copy of this CAC, along with your full contribution, to the SGO. The SGO will issue you a COR within 30 days of receiving your contribution.

What if I don’t need all of my tax credit?

Any credit amount that exceeds your tax liability for the year may be carried forward and applied to your tax liability in the subsequent five taxable years. Credits are applied to the earliest year for which there is a tax liability. Credits cannot be carried back to a prior tax year.

Are there limitations on the credit?

No credit shall be taken under this Act for any qualified contribution for which the taxpayer claims a federal income tax deduction.

If you have additional questions or need further information regarding this or any other state and local tax matter, call 888-556-0123 or fill out our form.