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New law gives scholarships to students, tax credits to taxpayers

By Staff atILAO on February 08, 2018
A hand with a pen filling out tax forms with a calculator in the back

This guest blog post was written by Molly DiRago, an attorney in Illinois.

The Invest in Kids Act was signed into law in 2017 in Illinois. It lets taxpayers get a tax credit for donating to scholarship organizations. The organizations must give money to elementary and high school students whose annual household income does not exceed 300% of the federal poverty level. The students must attend non-public school in Illinois.

This is a great way for taxpayers to do something good for Illinois students and also receive a credit on their Illinois state income taxes. It does not apply to federal taxes.

For taxpayers

Here’s what taxpayers need to know to make a donation:

  • Apply first! Go to tax.illinois.gov and apply to make the donation. Once approved, you will receive a Contribution Authorization Certificate.
  • Your tax credit will be equal to 75% of your total donation.
  • Your tax credit cannot exceed $1,000,000 per taxpayer.
  • The scholarship granting organization must be approved for it to be valid. Make sure to ask the organization if they are eligible to give “certificates of receipt” before you make the donation.
  • Individual donors may select the school to direct their donation, but corporate donors can only select the region.
  • If you plan on making more than one donation, you must apply each time.

Illinois is capping the amount of credits they’ll give out at $75,000,000 per calendar year. So if they get a lot of applications, there’s a chance you will have to wait until next year to be approved under this program.

For scholarship organizations

If you’d like your organization to be able to give out “certificates of receipt” to taxpayers, you must apply to be a “scholarship granting organization” (SGO). Here’s what organizations need to know to become qualified:

  • Apply first! Go to tax.illinois.gov to apply.
  • You must be exempt from tax under 501(c)(3).
  • You must use 95% of the qualified contributions for scholarships.
  • You must follow the rules in the Invest in Kids Act in deciding which students to give scholarships to.
  • Your must deposit and hold the donations in a separate account from other funds

For students

Scholarships can only go to eligible students (see below) to attend certain private schools in Illinois. This is an important consideration, as some Illinois taxpayers would prefer to donate to organizations that support public schools. This program does not.

To qualify, the student must be:

  • A member of a household whose annual income does not exceed 300% of the federal poverty level,
  • Eligible to attend a public elementary school or high school in Illinois the semester immediately preceding the semester for which he or she first receives the scholarship, and
  • Starting school for the first time in Illinois.

Priority is given to students who:

  • Received a scholarship the previous year,
  • Have annual household income at or below 185% of the federal poverty level,
  • Have a sibling currently receiving a scholarship, or
  • Live in a “focus district” (any district that has graduation rates below 60% or subgroups that perform in the lowest 10% of all Illinois students in that particular group).

If your child is interested in applying for a scholarship under this program, you should start by contacting a scholarship organization.

This information is posted as a public service by Illinois Legal Aid Online and its partners. Its purpose is to inform people of their legal rights and obligations. Talk to a lawyer if you have questions about how this information applies to you.