By: Doug Hasler. CPA. Director
An Indiana Scholarship Granting Organization (SGO) is an organization that awards school scholarships to eligible students. Qualified SGOs receive funding for school scholarships from private, charitable donations.
Those who have donated to an SGO that has been certified by the Indiana Department of Education (IDOE) will then be eligible to take advantage of a 50% credit against their individual or entity’s Indiana state tax liability.
Indiana SGO Credit Restrictions
Among other restrictions, this credit relates only to contributions that ultimately are used by public or nonpublic elementary schools (grades K-8) or high schools (grades 9-12). The credit is not available for contributions that are used by colleges, universities, or other institutions of higher education.
A donor may designate their gift to a specific school, but not to a specific student. SGOs are required to meet organizational and financial reporting requirements. Parents may apply for scholarships from a certified SGO at a participating school. A student is eligible to apply for the program if the student is a member of a household with an annual income of not more than 300% of the amount required to qualify for the Federal Free or Reduced-Price Lunch Program. The SGO may establish certain requirements for the scholarships they provide.
While there are no limits on the size of qualifying contributions to an SGO, the entire tax credit program has a limit of $18.5 million for the Indiana state fiscal year ending June 30, 2023. The total credits awarded to date are posted on the Indiana Department of Revenue’s (IDOR’s) School Scholarship Credit webpage.
Indiana SGO Benefits
What is an example of possible benefits? For example, a donation of $10,000 could result in the following benefits:
- $5,000 tax credit against your Indiana state tax due, and
- $10,000 charitable contribution deduction on your federal income tax return if you itemize your deductions (vs. taking the standard deduction); however, the net federal itemized deduction effect could be reduced due to the possible reduction of the itemized deduction for state taxes paid, since state taxes paid are reduced by the credit.
As a donor, the receipt letter you receive from the SGO will have the amount of the donation and the tax credit certification number (TCCN). The TCCN is provided by the Indiana Department of Revenue and must be included on your Indiana tax return to receive the state tax credit.
Any unused Indiana SGO credit claimed by the taxpayer in the current year can be carried forward for nine years after the year in which it is first available but is never refundable. Taxpayers will also want to plan their other nonrefundable Indiana credits accordingly (i.e., Indiana college contribution credit, Indiana 529 Plan credit). If you have Indiana tax withheld from your sources of income, the withholding would be refunded on your Indiana tax return if you decide to contribute to an SGO.
The ultimate benefit to each taxpayer is highly dependent on their overall individual income tax circumstances, including income level, the interaction of various state tax credits, and complexity of federal rules surrounding itemized deductions and the standard deduction.
Note that Ohio has a similar program for SGOs.
To fully understand the effects of the Indiana SGO tax credit on your individual income tax return, please consult with your Blue & Co. tax advisor.