Member Article

A lesser-known state incentive in the nonprofit sector has created a boon for taxpayers, private education institutions and their students. Across the country, states are providing tax credits that reduce individuals’ state income taxes for any donation to a state-certified nonprofit organization providing scholarships to K-12 students to attend private schools.

Most commonly called “scholarship granting organizations” (SGOs), these specialized nonprofits must navigate complex and varying state law requirements in order to receive SGO certification and be eligible for the tax credits. Fortunately, once an entity has been certified as an SGO, their administration can be relatively straightforward. SGO entities can be operated by the schools themselves or as a stand-alone entity that services a multitude of schools in the state. Additionally, to further ease administration, many of these programs allow pass-through entities (such as LLCs, trusts, and partnerships) to also take advantage of the credits, which creates a further opportunity for tax savings.

While the tax credit has certain dollar amount thresholds that vary state-by-state, the availability of a tax credit offers extra incentive for taxpayers to donate to these organizations, and offers a means for private education institutions to receive larger donation pools. As of December 2022, there are at least 21 states that offer some form of SGO program, which provides vast opportunities for institutions, taxpayers, and, most importantly, students.

The benefit for taxpayers is clear. Taking Ohio’s SGO program as an example: for taxpayers who owe at least $750 in Ohio state income taxes, participating in Ohio’s SGO program may cost nothing. If a taxpayer donates up to $750 ($1500 for married couples filing jointly) by December 31, 2022, they can take $750 as a dollar-for-dollar credit off of their 2022 Ohio state income taxes, reducing their Ohio state income tax to $0. If you are looking to take advantage of this credit in 2022, a list of state-certified SGOs can be found here.

Dinsmore is on the forefront of SGO developments, offering a wide range of SGO creation, development, compliance, and general nonprofit compliance services.