Education Freedom Tax Credit can save donors 354% more than a deduction

Under the program, donors can receive a federal tax credit of up to $1,700. That’s a direct subtraction from your tax bill, not just a deduction from your taxable income.

The Federal Scholarship Tax Credit program safeguards against abuse by the wealthy while providing a generous benefit to middle-class donors.

The program allows individual taxpayers to receive a dollar-for-dollar federal tax credit of up to $1,700 each year for donations to qualifying scholarship-granting organizations. Those tax-exempt organizations use the donations to provide money to students for educational needs.

A tax credit is more valuable than a deduction of the same amount. A credit reduces the federal income tax owed, while a deduction reduces only the income subject to taxation.

Consider a taxpayer who falls into the 22% federal income tax bracket, which is income from $48,476 to $103,350.

A $1,700 tax credit reduces the person’s federal income tax dollar for dollar by $1,700.

By comparison, a $1,700 tax deduction would reduce taxable income by $1,700, not their tax bill. At a 22% marginal rate, that deduction would save the taxpayer $374.

In this example, the tax credit saves the taxpayer $1,326 more than a tax deduction of the same size.

Illinois taxpayers could benefit from this substantial tax credit while helping families afford an education that better meets their children’s needs. Donors receive a dollar-for-dollar federal tax benefit, while students gain access to privately funded donations, which can go to students in all schools, including public.

Any Illinois taxpayer can get the credit, but Illinois families cannot benefit from the money unless Gov. J.B. Pritzker opts the state into the program. He has until Jan. 1 to decide.

If he refuses, money donated by Illinois taxpayers would go to students in other states.

So far, 31 states have opted in, including six controlled by Democrats. If Pritzker follows their lead, Illinois could attract nearly $1 billion in private funding for educational needs.

Democrats for Education Reform and Democratic Colorado Gov. Jared Polis have called opting in a “no-brainer.” The decision should be easy for Pritzker.