Did you know you can redirect your tax liability to fund a scholarship for a student at a school of choice?
Fifteen years ago, Georgia lawmakers adopted the Qualified Education Expense Tax Credit, more commonly known as the state’s tax credit scholarship. Through this program, businesses and individuals make donations to a qualified student scholarship organization (SSO) and they receive a credit against their taxes. Students can then receive scholarships to attend private school.
The total tax credit cap is $120 million, which was raised from $100 million a couple of years ago. That has resulted in about 2,000 more students receiving a scholarship as the number of students participating grew to 19,516 in 2022.
While those numbers are a fraction of the students in Georgia, it’s not because of lack of interest. The program is wildly popular. Every year, the cap is met within a few days. But besides the limitations from the cap, there are many who simply don’t know about it.
Individuals can receive a 100% tax credit for donations to an SSO up to $2,500, or $5,000 for married couples. Though you still pay the same amount, this reduces tax liability. Businesses can also receive a credit, with the amount capped at 75% of their state corporate income tax liability. The state also allows businesses to receive credits against the state’s insurance-premium tax, capped at 75% of the liability but not to exceed $1 million.
The tax credits will be made available on the first business day of the year, which is January 2. That means an individual or business who wishes to donate needs to contact an SSO by the end of 2024. Different SSOs may have different deadlines, ranging from the middle of December up to December 31.
You make your pledge via an SSO. For more details, check out a full list of SSOs here.
The steps include:
- Make a pledge before the end of 2024
- Fund your scholarship within 60 days
While opponents argue that this “takes” money from the state or public education, the truth is that it saves the state money, which can then be put back in public education or other areas of need. A 2023 report from the Georgia Department of Audits and Accounts detailed the fiscal impact of the program:
“We estimate for the state to break even on the QEEC tax credit for 2021 contributions, the switcher rate would need to be 67%. This rate is based on our estimates of the number of scholarships resulting from 2021 contributions and the taxpayer use of credits. If 67% of the students switched from public to private school due to the scholarship, the state would save approximately $81 million in public education costs, which would fully offset the forgone revenue of $81 million projected for calendar year 2021 contributions. If the switcher rate is 90%, as empirical studies of other states’ programs have found, the QEEC would result in an expenditure reduction of approximately $109 million and a net cost savings of approximately $28 million,” the report found.
That is related to state funding. There are also local savings:
“With a switcher rate of 67% for 2021 contributions, local cost savings would total $24.8 million. Calculating based on the 90% switcher rate taken from research, local cost savings would total $33.4 million. It should be noted that local expenditure reductions depend on the number of students receiving an SSO scholarship in each school system,” the report noted.
Various SSOs self-report switcher rates in the neighborhood of 90%, if not higher.
Georgia’s tax credit scholarship is one of the most expansive in the country without unnecessary and counterproductive regulations that hamper many similar programs. Still, clear opportunities exist as the state prepares to launch an education savings account next year. We can expand the tax credit scholarship program, save the state and local school districts money, and increase the number of scholarships available to students.