Understanding the Pennsylvania Education Improvement Tax Credit (EITC) Program

The Pennsylvania Education Improvement Tax Credit (EITC) program is a valuable initiative designed to encourage businesses and individuals to support educational organizations and schools. By offering tax credits in exchange for contributions, the EITC program effectively redirects tax dollars to enhance educational opportunities for students across the Commonwealth.

The Core Mechanism of EITC

The EITC program functions as a mechanism to enable companies to support innovative educational programs in exchange for a reduction in state tax. The Commonwealth of Pennsylvania created the EITC Program to stimulate giving to innovative educational organizations. It incentivizes investment in education by allowing eligible businesses to receive significant tax credits for contributions made to approved Educational Improvement Organizations (EIOs), Scholarship Organizations (SOs), and Pre-Kindergarten Scholarship Organizations (PKSOs).

Who Can Benefit from EITC?

The EITC program offers benefits to both donors and educational institutions:

Businesses: Businesses that pay taxes in Pennsylvania are eligible to participate. Qualified businesses can earn significant tax credits equal to 75% - 90% of its contributions to approved Educational Improvement Organizations, Scholarship Organizations, and Pre-Kindergarten Scholarship Organizations. In addition, businesses can receive federal tax benefits. In many cases the value of the federal deduction along with the state tax credit often exceeds the value of the gift.
Individuals: Individuals who pay Pennsylvania income tax are eligible for the program when they contribute through a special purpose entity (SPE). Pennsylvania has approved SPEs that allow a group of individual donors to participate and receive EITC and Opportunity Scholarship Tax Credit (OSTC). The sole purpose of the SPE is to receive contributions from its members, apply for the tax credits and disburse funds to approved organizations. Credits earned by an SPE can be passed through to an individual’s PA tax liability.

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Educational Organizations: The EITC program provides vital funding to a variety of educational organizations, including:
- Non-profit museums
- Civic clubs
- Community centers
- Private schools
- Pre-kindergarten programs.

How the EITC Program Works for Businesses

Eligibility: Businesses with Pennsylvania-sourced income are eligible. This means they must be employed by, a shareholder of, or a partner in or member of (i.e., own an interest in an LLC) a business that pays taxes in Pennsylvania. Employees of nonprofit organizations and government agencies are not eligible on their own, but may still be eligible if they file taxes jointly with an eligible person. They must also be current on all state and federal tax obligations.
Application: All applicants are required to submit applications electronically through dced.pa.gov. The business application guide explains the process of applying. New businesses may apply beginning July 1.
Contribution: Once the application is approved, the business can donate to an approved scholarship organization (SO), educational improvement organization (EIO), or pre-kindergarten scholarship organization (PKSO). Approved organizations can be found on the DCED site.
Tax Credit: The Department of Community and Economic Development will send an approval letter to businesses awarded educational improvement tax credits. The business then has 60 days to send its philanthropic contribution to Fox Chase Cancer Center, Corporate and Foundation Relations, Institutional Advancement, 333 Cottman Avenue, Philadelphia, PA 19111. Fox Chase will issue a gift acknowledgment which the business must send to the Department of Community and Economic Development within 90 days of the original approval letter.

Tax Credit and Deductions for Businesses

Donors receive a tax credit equal to 75% of their contribution up to a maximum credit of $750,000 per taxable year. This tax credit is increased to 90% when the donor agrees to contribute equal amounts for two consecutive years.

For contributions to PKSOs, a business can receive a 100% credit on the first $10,000 donated and a 90% credit on the remaining amount donated, up to a maximum credit of $200,000 per taxable year.

Example: XYZ company expects to have a tax liability of $150,000 in 2025 and decides to donate $150,000 in both 2025 and 2026 to one of its local community schools’ approved SOs. In both 2025 and 2026, it would receive a tax credit of $135,000, directly offsetting its tax liability.

Example: ABC company expects to have a tax liability of $200,000 in 2025. Many of its employees have young children, so it decides to donate $200,000 to its local PKSO. In 2025, it will receive a tax credit of $181,000 ($10,000 at 100% and $190,000 at 90%).

How the EITC Program Works for Individuals

Eligibility: Individuals who pay Pennsylvania income tax are eligible for the program when they contribute through a special purpose entity (SPE). There may be minimum contribution amount requirements depending on which SPE you contribute through.
Process: Individuals must utilize the SPE to donate funds; if you have a specific school in mind you would like to donate to, ask the school which SPE they recommend contributing to. Then, when applying to the SPE, you can note which school you would like to receive your contribution. The SPE will then distribute these donations as scholarship funds to your noted school (or any eligible schools if you did not note one in particular). Speak to your tax professional to determine how much you should contribute based on your individual state tax liability.

Tax Credit and Deductions for Individuals

Donors receive a tax credit of 90% of their contribution for that taxable year, and the remaining 10% may be used as a deduction on their federal return (speak to your tax professional to see if you qualify for the 10% deduction).

Example: Sarah expects to have a Pennsylvania state tax liability of more than $10,000 for the current year (2025). She decides to participate in the EITC program for her daughter’s school and contributes $10,000. She would receive a tax credit of $9,000, which would directly offset her 2025 PA tax liability, and a potential deduction of $1,000 on her 2025 federal return.

Impact and Examples of EITC in Action

The EITC program has a tangible impact on various educational initiatives throughout Pennsylvania. Here are a few examples:

Fox Chase Cancer Center's Teen Research Internship Program (TRIP): In 2020, Fox Chase’s Teen Research Internship Program became part of Pennsylvania’s eligible EITC innovative programs. The Teen Research Internship Program (TRIP) is an exploratory program for high school students interested in careers in science, technology, engineering, art, and math (STEAM). During the program, students conduct hands-on research, build professional skills critical to STEAM careers and expand their network with a community of science enthusiasts. Contributions to Fox Chase through Pennsylvania’s EITC program allow companies to support Fox Chase’s vital, high-quality educational programs serving public school students in the Greater Philadelphia region while also receiving a significantly smaller state tax bill. Your support through EITC will allow Fox Chase to offer this program at no cost to all participants! Your tax-deductible contributions will directly support and expand the program.
WHYY's Educational Initiatives: WHYY is renowned for the its educational kids TV programs broadcast on TV, but when it comes to supporting kids as they grow up, that’s just the tip of the iceberg. WHYY’s education initiatives support children and their parents, teachers, and other the adults who care for them. They offer free lesson plans, hands-on media arts training at WHYY’s Philadelphia Studios, teacher professional development and more. WHYY Summer offers intensive multi-week experiences for students finishing grades 6-12 as well as a spring break program for middle school students. WHYY donors can receive a Pennsylvania state tax credit up to 90% of their tax liability from EITC by contributing through our fundraising partner, Friends of Education LLC.

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United Way of Lancaster County's Pre-Kindergarten Scholarships: The Educational Improvement Tax Credit Scholarship Program is funded by local and locally represented businesses which uphold the value of early childhood education, and the immense impact quality pre-k has on children’s developmental needs as they begin their K-12 education track. United Way of Lancaster County works directly with the PA Department of Economic Development (PA DCED) in obtaining EITC credits and transforming them into scholarship funds for local families with Pre-K scholars. As part of this commitment, they offer scholarship assistance to children in financial need for Pre-Kindergarten programs. Businesses can receive a 100% tax credit for the first $10,000 contributed to a Pre-Kindergarten Scholarship Organization (like United Way of Lancaster County) during the tax year.

The Role of Special Purpose Entities (SPEs)

Pennsylvania has approved SPEs that allow a group of individual donors to participate and receive EITC and Opportunity Scholarship Tax Credit (OSTC). The sole purpose of the SPE is to receive contributions from its members, apply for the tax credits and disburse funds to approved organizations. Credits earned by an SPE can be passed through to an individual’s PA tax liability.

Donors connect with organizations and join a special purpose entity which grants access to tax credits and allows them to designate the beneficiary. Once enrolled, donors send their contribution to the SPE who ensure the donation reaches the designated organization.

Criticisms and Considerations

While the EITC program enjoys broad bipartisan support, it has also faced scrutiny from public education advocates who question the accountability of the program. Skeptics are concerned that there is virtually no accountability.

Staying Informed and Participating

To learn if your business qualifies for EITC, you can reach out to your accountant or the PA Department of Community and Economic Development. You can learn more about the application process for receiving EITC here. If you plan to seek EITC approval for your business, reach out to WHYY to be added to their EITC outreach list to keep up to date with their education programs.

As always, it is important to speak to your individual or business tax professional to help ensure you are up to date on any changes and deadlines in the EITC regulations, and to make sure the donation and tax credit are appropriate for your tax situation.

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