Virginia’s long-standing Education Improvement Scholarship tax credit program (EISTC) got a boost in legislative budget negotiations last month, thanks to Governor Youngkin’s amendment to restore funding to the full $25 million. In the draft budget, EISTC funding was to be cut in half. It’s a valuable program for students, schools, and taxpayers alike: individual and business donors can claim 65 percent of qualified donations as a tax credit.

As Virginia begins a new fiscal year, donors can submit pre-authorizations for tax credit eligible contributions on a first come, first serve basis.

About Virginia’s Education Improvement Scholarship Tax Credit Program

The EISTC was authorized in 2012 to provide scholarships to eligible low- and middle-income students to attend private K-12 schools and preschool programs.

Scholarships are available to students of families whose household income is either at or less than 300 percent of current poverty guidelines, or 400 percent in the case of a special needs student. As private school enrollment in Virginia continues to rise, the scholarship program is seen as an opportunity to allow more students to choose where they receive an education.

In the 2020-21 school year, more than 4,500 students at 184 schools participated in in the scholarship program. The average scholarship value was $2,799.

Both individuals and businesses may donate money or marketable securities and in exchange, receive tax credits. Now that the 2022-23 budget has been approved, the EISTC program has $25 million to allocate throughout the fiscal year; tax credits are awarded on a first come, first serve basis. Preauthorized donations from the 2021-22 fiscal year that are still outstanding and within the 180-day period are automatically added to the current program year, so it’s possible that even starting out as of July 1, there is less than $25 million available.

Virginia Budget Negotiations

In the preliminary budget draft, the scholarship tax credit program was supposed to be cut to $12 million in annual funding. Proponents of the cut said that the full tax credit isn’t used each year, but many urged the governor to amend or veto the cut. According to this article, more than $15 million in tax credits had already been allocated in the most recent fiscal year.

Advocates for choice in education expressed concern that cutting the program’s budget in half would have severely limited the scholarship program and thus, families’ ability to maintain a choice in private versus public schools.

The Governor’s proposal to restore funding to the full $25 million was met with unanimous support in the Senate and bipartisan support in the House.

Rules for Donating to Virginia’s EISTC

Before donating, donors must obtain preauthorization from Virginia’s Department of Education (DOE) via an eligible scholarship foundation.

Then, once the preauthorization is approved, donors have 180 days to follow through or risk losing the tax credits. The scholarship foundation would then submit documentation to VA DOE within 40 days of the donation. At that point, the foundation issues a tax credit certificate to the donor.

Individuals:

  • Minimum donation of $500
  • Maximum donation of $125,000

Businesses don’t have a minimum or maximum donation amount.

Donors can contribute more than the maximum in any given tax year; however, they will only get tax credits for the state-authorized maximum.

Tax credits can be claimed against the following state taxes:

  • Individual income tax
  • Corporate state income tax
  • Bank franchise tax
  • Insurance premiums license tax
  • Tax on public service corporations

Any unused portion of the tax credit can be carried forward up to five years. Donors can’t transfer the value of the tax credit to another person or entity. And while donors are permitted to designate or limit their donations to a particular group of eligible schools or programs, they cannot designate a specific child.

List of Qualifying Scholarship Funds

Virginia maintains an updated list of qualified scholarship funds. This list is current as of August 23, 2021 and includes almost 40 organizations.

The Future of School Tax Credits in Virginia

Virginia’s EISTC program isn’t at risk of going away, and for the time being, full funding of $25 million per year is assured. Education advocates are calling for an increase in the tax credit from 65 percent to 100 percent as well as expanding eligibility for families.

The tax credit program can be a valuable way for community-minded individuals and businesses to support education in their region while saving on taxes at the same time. For questions about using this tax credit as part of your overall tax strategy or becoming a qualified scholarship foundation, contact Jonny Rosch, CPA, a Partner with PBMares’ Not-for-Profit practice.