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Indiana School Scholarship Tax Credit Plan \| Helping Families Achieve Education Goals




Home - Implementation Info Center Home - Scholarship Tax Credit New Content Draft SGO Application Administrative Rules Dept. of Education Dept. of Revenue Accrediting Agencies (Final) Approved Tests (Final) How to Start an SGO Best Practices Looking for: E-Newsletter Overview and FAQs Info for Parents Info for SGOs Info for Schools Info for Donors Copy of Statute	Summary and Frequently Asked Questions A state tax credit program designed to provide scholarships to help low and middle income families attend the private or public school of their choice. 50% credit against state tax liability for contributions to qualified scholarship granting organizations. Taxes applicable: adjusted gross income tax, financial institutions tax, insurance premiums tax. Corporate or individual contributions qualify. Program caps: $2.5 million per year overall program cap (qualifying up to $5 million in donations to SGOs). No caps on the amount of a contribution, subject to availability. Scholarship Granting Organizations (SGOs): A 501(c)(3) that conducts a school scholarship program, is certified by the department of education, and grants school scholarships. Scholarships capped at the cost of education, defined as tuition and fees. Scholarships are awarded to the child, not the school. Scholarships, once awarded, are portable with students moving from one school to another. SGOs are prohibited from serving one particular school. Cannot distribute scholarships to students to attend a school with paid staff or board members or their relatives in common with the SGO. SGOs must distribute in scholarships at least 90% of contributions received and qualified under the tax credit. Must conduct criminal background checks on all SGO employees and board members, excluding any who might reasonably post a risk. SGOs must conduct outside financial audits and provide an annual report to the Department. Student eligibility: Indiana resident. Family income of not more than 200% of federal free or reduced lunch levels. Must be enrolling in kindergarten or enrolled in a public school during the preceding school year, or Has recevied a scholarship in the previous year from a scholarship program qualifying under the statute (including CHOICE Trust). No restrictions in statute on scholarships from multiple SGOs. Participating schools: Private schools accredited by the state board or a national or regional accreditation agency recognized by the state board. Public school school accepting transfer tuition enrollments (scholarship could cover the fees charged). School administers the ISTEP+ or another nationally recognized, norm-referenced assessment of students. No reporting requirements specified either to the SGO or Dept. of Education. *Why is the income eligibility up to 200% of free or reduced lunch levels?* This is a maximum or cap on income eligibility. SGOs can set their own income levels under that cap. For instance, the Educational CHOICE Charitable Trust in Indianapolis uses 100% of free or reduced lunch. *No limits on the size of contributions?* The goal is to fund the scholarships with new, private contributions from corporations and individuals. Capping the size of each contribution only imposes greater restrictions on giving. The entire program is capped at only $2.5 million per year ($5M in total receipts at 50%). *Isn’t this a pretty lucrative tax credit compared to others in the state?* Yes and no. The 50% tax credit is consistent with other state tax credits in Indiana , but with a program cap of $5M (the college tax credit has no cap, for instance), the impact is quite modest. The trend in other states has credits of 75%-100% and much higher program caps. This tax credit will be the only one aiding K-12 education in the state. *Why are SGOs able to use up to 10% of receipts for administrative costs?* While SGOs are low-overhead operations (experience in other states), there are costs and the 10% figure is consistent with other charitable organizations. SGOs are required, under the program, to meet a number of state and federal reporting requirements. They have to do their own fundraising for scholarships. They must administer application processes with families and schools, including verifying income eligibility (no small requirement). It is no small project to create and operate an SGO and fundraising is still a significant challenge even with a 50% tax credit (the trend around the country for these programs is 75 to 100% tax credits). *How do you make sure these SGOs or the schools they serve don’t discriminate in giving out scholarships?* SGOs would be required to organize as IRS 501(c)(3) charitable organizations and all federal prohibitions against discrimination by such tax-exempt organizations would apply. Scholarships are awarded on the basis of families, not schools, and any discrimination in this process would put the SGO at risk of losing its status. Participating schools would have to accept any SGO scholarship, with rules set by the SGO. *How much would scholarships be?* Each SGO would set its own scholarship amounts based upon what it can raise and its own particular approach to helping families. However, the scholarships could not exceed the actual cost of education at the school. Experience in other states shows SGOs really focus on scholarships as a leg-up for families, not a full-ride tuition support. Scholarship levels tend to be in the $1,500 to $2,500 range, well below the total costs. If the student is accepted, the private school would need to finance the balance of the cost from other funding sources. *Would an individual be able to claim a tax credit for the private school tuition they paid for their children?* No. The tax credit is available for donations to SGOs and not for individual education costs. Donors to SGOs cannot direct their contribution to fund particular children. Would this impose more regulations or limit the autonomy of private schools? Private schools are not required to accept or participate in the program. If they do, then they would have to be accredited and administer testing such as the ISTEP+. There would be some additional reporting requirements to SGOs, but it is not expected to be significant and private schools are not required to accept the scholarships - but they must be consistent. Will donors to the SGOs be able to claim a federal deduction as well? Yes, but it depends on the type of donor, taxable income, and individual factors. Even when the SGO contribution qualifies for charitable deduction, the taxpayer cannot claim the amount received in the state tax credit (50% of the donation). The actual impact will vary, but analyses show that even at the highest corporate rates or individual brackets the SGO donation will still find a 30-40% total state and federal tax cost for the contribution. *How does this save the state money?* If you consider the “cost” of the program as forgone state revenues, they are easily offset by savings to the state from children who enter the private school setting. A May 2009 study by David Stuit, research fellow for the Friedman Foundation, found that the program would result in net savings to the state. For instance, at an average scholarship of $2,500 or less the state would realize up to $13 million a year in savings. *How is this different than a “voucher”?* This is not a voucher. They are very different school choice programs. Vouchers involve a direct appropriation or transfer of public funds to pay the costs of private school education for participating children. They are government funded. Scholarship tax credits are funded through private donations, encouraged through a state tax incentive (as are many other “public good” areas). No public money flows to families or schools under a scholarship tax credit program.
Have Questions? With the passage of STC only a month old, a number of questions and issues remain to be resolved in the rulemaking and implementation processes. We would be happy to try and answer your questions and plug you into our regular email updates. Please contact Lindsey Brown at School Choice Indiana for more information.
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