Understanding the Opportunity Scholarship Tax Credit Program
The Opportunity Scholarship Tax Credit (OSTC) program aims to provide educational opportunities for students residing in low-achieving school districts by offering tax credits to businesses that contribute to Scholarship Organizations (SGOs). These contributions, in turn, fund scholarships for eligible students to attend alternative schools.
Funding Mechanism: Private Donors and SGOs
The OSTC program operates through a system of private donations and Scholarship Organizations (SGOs). Private donors, typically businesses, contribute to SGOs, which then use these funds to provide tuition assistance in the form of scholarships. These scholarships enable eligible students residing within the boundaries of a low-achieving school to attend another public school outside of their district or a nonpublic school.
Tax Credits for Businesses
A cornerstone of the OSTC program is the provision of tax credits to businesses that contribute to Opportunity Scholarship Organizations. These tax credits serve as an incentive for businesses to participate in the program and support educational opportunities for students in need.
The tax credits awarded to businesses are equal to 75 percent of their contribution amount, up to a maximum of $750,000 per taxable year. However, this percentage can be increased to 90 percent if a business commits to providing the same contribution amount for two consecutive tax years.
Tax credits may be applied against the tax liability of a business for the tax year in which the contribution was made. For state tax purposes, the 75 or 90 percent credit should be reported as an “Educational Improvement Tax Credit” on the respective state corporate tax form.
Read also: Learn about the Genesee Opportunity Scholarship
Businesses may apply more than once for credits during the year for a maximum of $750,000.
Eligibility Criteria for Students
To be eligible for an Opportunity Scholarship, students must meet specific criteria related to their residency and household income.
Specifically, students must live within the attendance boundaries of a low-achieving school, as determined by the Pennsylvania Department of Education. These "low-achieving" schools are defined as those falling within the bottom 15% of public schools based on test scores.
In addition to residency requirements, students must also meet certain household income criteria to qualify for a scholarship. The family income of participating students must be less than $112,348, with an additional $19,775 allowed for each child. This base amount, as well as the per-child amount, is adjusted annually for inflation.
Students with special needs have different family income limits to qualify if family income is under 150% of that limit (e.g., $142,011 for a one-child family), or 299% for those with the most severe needs ($171,475).
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SGOs must prioritize prior recipients and families earning no more than 185% of the FPL. SGOs set scholarship amounts, capped at tuition or $8,500 for the general student population, $15,000 for special needs students, $10,500-$12,500 for students in “economically disadvantaged schools,” and $19,000 for students with special needs in such schools. Public school boards may offer tuition grants to private schools, capped at the state’s per-pupil subsidy. Donors to SGOs receive 75% of the value of their donations in tax credits, or 90% if pledging for two years. Qualifying expenses include tuition, fees, and district-provided transportation.
Application Process for Businesses
Pennsylvania businesses interested in participating in the OSTC program can apply for tax credits through DCED’s electronic single application system. A business application guide is available to explain the application process in detail.
Tax credit applications are processed on a first-come, first-served basis, with applications received on a specific day being processed randomly before moving on to the next day's applications.
To apply, businesses must first Receive approval letter and complete the Designation Form. The PA DOR will send you an approval letter. Once the remittance is received, AAA will promptly return an acknowledgement for each remittance (known as a Certificate of Contribution) to your company. It will list the name of the company remitting the funds, the company’s tax ID number, the amount of the remittance and the date of the remittance (please remember that the payment must be made within 60 days from the date of approval by the PA DOR).
An approved company must provide proof to DCED within 90 days of the notification letter that the contribution was made within 60 days of the notification letter.
Read also: Eligibility for Colorado Scholarships
Role of the Pennsylvania Department of Education
The Pennsylvania Department of Education plays a crucial role in the OSTC program by maintaining a list of the lowest-achieving schools within the commonwealth. This list is used to determine the eligibility of students based on their residency within the attendance boundaries of these schools.
Economically Disadvantaged Schools
The Department is authorized to approve only one Opportunity Scholarship Organization - Economically Disadvantaged Schools per year. An Economically Disadvantaged School is defined as any school within this Commonwealth at which at least 75% of the students attending the school in the preceding school year received an Opportunity Scholarship tax credit award.
Reporting Requirements
Starting with the 25/26 school year, SGOs will be required to submit reports with specific information about scholarship recipients. This information includes:
- Name of each scholarship recipients school district of residence.
- Name of the school that each recipient attended.
- Identify whether a scholarship recipient was an eligible student with a disability.
- Along with the grade level of the recipient (K-8) or (9-12).
Renewal reports are due by November 2026.
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