Improving Pennsylvania’s Educational Tax Credit Programs

Pennsylvania House Bill 91: Backgrounder

House Bill 91 will improve the Educational Improvement Tax Credit (EITC) and the Opportunity Scholarship Tax Credit (OSTC) programs and make a significant difference to our children and families.

The changes to the EITC and OSTC programs proposed in HB 91 will make it easier for businesses to participate and will encourage more businesses to join the programs—creating even more scholarship opportunities for students across Pennsylvania.

House Bill 91 earned wide bipartisan support from Pennsylvania’s legislators, with a vote of 193-4 in the House of Representatives and passing unanimously in the State Senate.

When signed by the Governor, House Bill 91 will consolidate the EITC and OSTC business tax credit programs into one statute and will make changes intended to improve the operation of the tax credit programs.

Specifically, the changes to the EITC and OSTC programs in HB 91 include:

Career and Technical School Eligibility

The amendments allow for career and technical schools with eligibility to receive business donations within the Educational Improvement Organization (EIO) program of the Educational Improvement Tax Credit.

Pre‐K Student Age Increase

The amendments add five- and six-year-old students to the definition of Pre‐K program under the Educational Improvement Tax Credit.

Pre‐K Commitment Expansion

The amendments will allow businesses applying for Pre‐k credits under the Educational Improvement Tax Credit to apply for a two-year commitment.

Additional Tax

The amendments will add the Malt Beverage Tax (Tax Reform Code Article XX) to the list of taxes to which credits could be applied.

Multiple Pass‐Throughs

The amendments will permit the distribution of tax credits through more than one level of pass‐through entities. The amendment will align the statutes with the basic principle that partnerships and other flow‐throughs, generally speaking, are not taxpayers; rather their individual, estate, trust and corporate partners, members or shareholders are taxpayers. When HB 91 is signed by the Governor, large partnerships and LLC’s will be able to create smaller subsidiary partnerships whose members can then participate in the EITC and OSTC programs.

Special Purpose Business Firms

Under the current statutes, a business firm applies for credits. The amendments would include, within the definition of business firm, an entity funded by the owners or employees of one or more other business firms, the special purpose of which is to make contributions that will qualify for credits. This will also allow smaller subsets of the owners of large entities to more easily participate in the programs.

Spousal Use

The amendments will permit credits distributed to a partner, member or shareholder to be applied not just to the income of the partner, member or shareholder but also to a spouse who files a joint return with the partner, member or shareholder.

Alternative Credits

The amendments will make four changes to facilitate the use of credits by participating business entities:

The EITC program has been helping families choose the education that best fits their children’s needs for many years. The OSTC, which is only two years old, has already helped many families that have children residing in the area of a “low-achieving school.”