Donation tax credits can boost Illinois public school foundations

A federal tax credit is expected to boost school donations. Public school foundations can obtain the funds to help Illinois students.

Public school students could soon have access to additional funds for education prompted by a federal tax credit, but unless their local public school foundations act that money will end up flowing out of state.

And all that potential good depends on Gov. J.B. Pritzker allowing Illinois to join the program.

The Federal Scholarship Tax Credit program provides a dollar-for-dollar annual tax credit up to $1,700 for people contributing to scholarship granting organizations. Those organizations can then provide funds to public or private school children for tutoring, fees for dual enrollment, educational therapies for students with disabilities and other academic needs.

Local public school foundations can participate in the program by becoming scholarship granting organizations. Doing so could prompt more local donors to give and would help ensure donated funds stay local.

Here’s what these foundations should know.

Local public school foundations can become scholarship granting organizations

Public school foundations already exist throughout Illinois to raise funds to supplement public education. Many are tied directly to a local district, such as the Children First Fund in Chicago, Peoria Public Schools Foundation, CU Schools Foundation in Champaign-Urbana and Quincy Public Schools Foundation.

Those already-existing foundations could become scholarship granting organizations and participate in the federal program. As provided in the statute, the organization must:

• Be a 501(c)(3).
• Provide scholarships to at least 10 students who are not all attending the same school.
• Spend at least 90% of the income of the organization on scholarships for eligible students.
• Not provide scholarships for any expenses other than qualified elementary and secondary expenses.

Additional guidance will be forthcoming from the U.S. Department of the Treasury and the Internal Revenue Service.

Becoming a scholarship granting organization will ensure tax credits for a foundation’s donors.

Public school foundations already solicit contributions from community members. But if they become scholarship granting organizations under the new federal program, those donations will receive an annual dollar-for-dollar federal tax credit, up to $1,700, starting Jan. 1, 2027.

That makes contributing to a school foundation even more attractive to donors and could draw more individual donors than the foundations have had in the past.

Becoming a scholarship granting organization will ensure federal donations stay local

A $1,700 dollar-for-dollar tax credit is attractive. Donors will be able to give to any scholarship group in the nation to obtain the tax credit. The program could attract donors that have never thought about donating to a local school foundation or other scholarship granting organization in the past.

The best way for public school foundations to grab that money before it flows out of the state: become a scholarship granting organization.

Money donated to a local scholarship group will stay local. It will never pass through the hands of state or federal entities.

Any students whose household incomes are at or below 300% of the median income level in their area will be eligible to receive the funds for academic needs, allowing the scholarship group to provide funds to low-income children in the area.

But there’s still a hurdle: Gov. J.B. Pritzker must let Illinois join the program. If he doesn’t, local scholarship granting organizations cannot participate and money will flow from donors to other states.

The state must opt into the program to keep funds local

While a taxpayer can claim a credit for donating to any eligible scholarship granting organization starting in 2027, the state must opt into the program for local organizations to benefit.

If the state fails to opt in, taxpayers could donate to scholarship groups in one of the states that has already indicated it will opt into the program. They will get the tax credit, but that money will not flow to Illinois students. If the state does opt in, Illinoisans will have the opportunity to donate to local scholarship groups and keep the money in the state.

Interested public school foundations should start exploring now how they can become scholarship granting organizations and keep extra funding for education from flowing out of the state.