Virginia Education Improvement Scholarships Tax Credits
According to Virginia’s new Education Improvement Scholarships Tax Credits program, donations to approved foundations will provide scholarships for new low-income new students at non-public schools. Individual or business donors then receive a 65% Tax Credit. Virginia has allocated $25 million in tax credits for each year of the program, which will continue until January of 2028.
The Catholic Diocese of Richmond’s McMahon Parater Foundation for Education has been approved by the Virginia Department of Education to receive donations under this program, and to distribute scholarships to qualifying students who attend one of the 29 Catholic schools in the Diocese.
The minimum donation amount is $500. The maximum donation amount for individuals and married couples is $125,000 per year. There is no maximum limit for any business entity, including sole proprietorships.
Individuals can use the Tax Credits against their Virginia personal income tax liability.
Businesses can claim the Education Improvement Scholarships Tax Credits against:
- Virginia Corporate Income Taxes
- Virginia Bank Franchise Tax
- Virginia Insurance Premiums License Tax
- Virginia Public Service Corporations Tax
- Personal Income Taxes via pass-through entities such as S-Corporations, LLCs and Partnerships.
The amount of the Tax Credits may not exceed the donor’s tax liability for the year in which the credit is claimed, but Tax Credits may be carried over for up to five succeeding years.
In addition to a 65% Tax Credit, individuals and businesses may also receive a deduction for a charitable contribution, and therefore achieve tax savings in two ways:
- Deductions against taxable income as a charitable donation on both federal and state income taxes.
- The tax reduction equals the contribution amount times the tax rate of the applicable tax (federal or state).
- Subject to rules governing deductibility of charitable contributions
- Credit against Virginia taxes.
- Tax reduction equals 65 percent of the amount of the donation.
- Credit is non-transferable.
IMPORTANT: Consult your tax advisor to determine your specific tax savings.
Donating a Scholarship
Donations to the McMahon Parater Foundation for Education under this program are used to provide scholarships at Catholic Diocese of Richmond (CDR) schools.
Donors can request that their contributions support scholarships at specific schools within the CDR,
- However, if those schools do not have enough qualified applicants, the funds will be used for other eligible students within the CDR.
- Donors may not direct their funds to support a specific student.
Donors’ direct contributions to schools for other purposes or other scholarships do not qualify for Tax Credits under this program. Only gifts given to the Foundation which have been preauthorized by the Virginia Department of Education specifically for this program are eligible for these Tax Credits.
- Children receiving these scholarships must come from families whose annual household income is less than 300 percent of the current poverty guidelines.
- For children with disabilities, the family’s household income must be no more than 400 percent of the poverty level.
- In addition, the children must be residents of Virginia, and fit one of these criteria:
- are eligible to enter kindergarten or first grade, OR
- attended a Commonwealth public school for at least half of the current or prior school year, OR
- were not Virginia residents during the preceding school year, OR
- were prior recipients of a scholarship under this program.
Process for Obtaining Tax Credits
- Obtain a blank Letter of Intent and Preauthorization Form from the McMahon Parater Foundation (MPF) or the Catholic school of your choice.
- Send the completed Letter and Form to MPF, who will submit your Preauthorization Form by secure electronic dropbox to the VA Department of Education (DOE) for approval of your Tax Credits.
- Within 30 days, the DOE will send you a Preauthorization Notice indicating your Tax Credits have been approved.
- Return the Preauthorization Notice with your check or securities transfer information to MPF within 180 days of the date of the Notice. (Preauthorizations become void after 180 days.) Make checks payable to the McMahon Parater Foundation.
After You Have Made Your Donation…
- Within 20 days of receiving your gift, MPF will:
- Send you an acknowledgement of receipt of your gift, and
- Send the DOE a notice that your gift payment has been received, and
- Notify the designated school(s) that your gift has been received.
- Within 30 days of receiving notice of payment, the DOE will issue your Tax Credit Certificate.
- The Tax Credit Certificate must be attached to the tax return in which the Credits are being claimed.
Tax Credits may be claimed for the taxable year of the donation, and for up to five successive years.
By statute, at least 90% of the donation must be used to provide scholarships. The McMahon Parater Foundation may use up to 10% of the donation to cover the costs of administrating the scholarship program. Every effort will be made to minimize the administrative costs, in order to provide the maximum in scholarship support.