Pennsylvania taxpayers have for many years been able to give money to a qualifying charity and get a credit against state income taxes for at least 75% of the gift under the Pennsylvania Educational Improvement Tax Credits Program (EITC).
For example, a $10,000 charitable gift could reduce PA tax by $7,500; the taxpayer deducts the $10,000 as a charitable contribution and reduced the PA tax bill by $7,500. Before the deduction of state taxes was limited to $10,000, the IRS ignored the EITC arrangement, because the federal income tax effect was neutral.
The IRS just issued new regulations indicating that charitable contribution deductions must now be reduced by the amount of the EITC. The new regulations bolster the $10,000 limit on deductible state and local taxes and prevent taxpayers from circumventing the limit by characterizing state tax payments as gifts to charities.
Nevertheless, it is still in the best interest of the charities to continue to use the EITC program. The EITC enables taxpayers to donate to the charity at the expense of the Pennsylvania Department of Revenue.
Feel free to call us to discuss this and other issues which arise under the 2017 Tax Act.
This post was written by LeRoy Metz
