As we approach year-end, many people are reviewing their charitable giving for the year in conjunction with other regular year-end tax planning. Sometimes unique opportunities arise that meet a special need in the community; this is one of those opportunities. Thanks to a bill passed in 2021, you can contribute to an education-related charity and take advantage of a tax credit the State of Ohio is offering. This is essentially an opportunity for you to direct a portion of your Ohio tax liability to a qualifying education-focused charity instead of Ohio’s general fund. As this is fairly new, many charities are just starting to apply for Scholarship Granting Organization (SGO) status, so the charities that qualify are limited (see list of qualifying SGOs below).
As background, in 2021, the State of Ohio approved a bill that allows individuals (pass-through entities, as well, but we won’t get into that) to receive an Ohio state income tax credit for contributions to a qualifying SGO. The credit is available to individual taxpayers up to $750, although any amount can be donated to the SGO. Married couples filing joint income tax returns could, therefore, each give up to $750 for a maximum credit of $1,500. Based on the wording of the statute, we suggest that each spouse contributes separately.
This credit is a dollar-for-dollar offset of your Ohio tax liability up to the donation amount, so it is more valuable than a deduction of the same dollar amount. The credit is nonrefundable, so if your Ohio tax liability is $400 and you donate $750, you will not receive the remainder of the $350 as a refund.
FAQ’s
What is an SGO?
An SGO is an organization specifically designed to collect donations from donors and then issue scholarships to students with financial needs. They must meet certain criteria established by the State certifying the entity (in this case Ohio, but other states may offer similar programs).
How do you receive the tax credit?
You write a check or use a credit card to donate up to $750 to one of the SGOs on the list below. On your Ohio income tax return, you’ll then receive a credit in the amount of your donation unless the donation exceeds your Ohio tax liability. If the donation exceeds your Ohio tax liability, you will not receive any Ohio income tax benefit for that portion of the donation (if you are married, then you’ll receive a credit equal to the amount you and your spouse separately contribute with the same caveat that the credit cannot exceed your tax liability).
Is the contribution deductible for Federal tax purposes?
A tax deduction for Federal tax purposes is a possibility under certain conditions. Please contact your F&M advisor or tax preparer to discuss your specific circumstances.
Who has been certified as an SGO?
A list of certified SGOs can be found here: https://charitable.ohioago.gov/Scholarship-Granting-Organization-Certification/List