New tax credit incentive supports education choice
July 19, 2021
By Charles Leis
Because of the pandemic, the 2020-21 school year was very difficult for thousands of Kentucky elementary and high school students, but the heaviest burden fell on low-income students and families of color; those who have limited resources for educational choices. In future years, Kentucky’s K-12 students will have choices for educational services thanks to the Education Opportunity Account (“EOA”) Act passed by the Kentucky 2021 General Assembly.
The EOA financial aid is available to families whose household income is less than 175 percent of the Federal Reduced Price Lunch income thresholds as published annually by the USDA. In Kentucky, more than 400,000 public, non-public, private and home-schooled students will likely be eligible to receive financial assistance to pay for the services desired. In all cases the amounts awarded in the EOA are means tested and must be used for only allowable educational services.
The main objective of the EOA is to make educational choices available to ALL Kentucky K-12 students regardless of their financial situation. Wealthy families have choice in that they can move to a better public school district, send their child to a non-public school, or otherwise engage educational services. On the other hand, financially disadvantaged families have no choice; they are restricted to the education provided for their ZIP code. This bill is designed to level the playing field and provide alternative services for the students.
The allowable services are very extensive and include among other services, tuition for out-of- district public schools and non-public schools; fees for various therapies, tutoring, vocational training, technical training and dual credit courses; financial assistance for acquisition of technology hardware, software and internet connectivity, etc.
Under the Act individuals and businesses are highly incentivized to donate to non-profit, state certified administrative organizations referred to as Account Granting Organizations (“AGO”) and in return receive a credit to apply against their Kentucky income tax liability in an amount up to 97 percent of the donation.
Some key considerations about the Kentucky income tax credit are:
- The incentive is available to individual and corporate taxpayers,
- The incentive credit is 95 percent of the donation; 97 percent if multiple year commitments are made,
- The tax credits are issued on a first-come, first-served basis, except that multi-year commitments are granted first in subsequent years,
- The maximum tax credit per taxpayer is $1,000,000,
- The aggregate tax credits are limited to $25,000,000 annually,
- The tax credits are nonrefundable and
- Unused tax credits may be carried forward for up to five years.
Nineteen other states have developed similar programs to great success. Prominent school choice organizations around the country rate Kentucky’s program as one of the most expansive. If our experience is anything like theirs, these credits will be very popular and are likely to be consumed quickly. The program is set to become effective later this year, and the Kentucky Department of Revenue is expected to publish necessary forms and regulations.
Tax practitioners and financial planners will play a key role in guiding their clients through this transformational education funding process. When rules, forms and regulations are published, EdChoice KY will be ready to assist the Kentucky Society of CPAs with any necessary information. We will also provide regular updates to our members, so that as your clients, they may take maximum advantage of the tax benefits.
For more information about these innovative ways to help Kentucky’s families find the right learning opportunity, visit EdChoiceKY.com. You can sign up for periodic updates about the EOA program and how to make a difference in the life of a student who needs it.
About the author: Charles H. Leis, is chair of EdChoice KY a coalition that supports education choice alternatives in Kentucky.