By: Bob Findley, CPA, Director and Sam Bass, CPA, Staff Accountant
In September 2021, Ohio enacted section 5747.73 of the Ohio Revised Code, which allows a tax credit for individuals and businesses who make a qualified donation to a Scholarship Granting Organization (SGO) certified by the Ohio Attorney General.
How does this impact your nonprofit organization? It simply further incentivizes potential donors to contribute.
Ohio SGO Tax Credit
Taxpayers are allowed a dollar-for-dollar nonrefundable credit up to $750, rather than a deduction, against their Ohio tax liability for their cash contribution directly to an SGO. A credit is advantageous because it directly reduces your Ohio tax liability, whereas a deduction reduces the amount of income that is subject to tax.
To demonstrate, a $750 deduction equates to tax savings of $165, assuming the taxpayer is in the 22% bracket. Conversely, a $750 credit saves $750 of tax. Further, the savings from the deduction is only applicable if the taxpayer itemizes deductions on their federal tax return (an overwhelming majority of taxpayers use the standard deduction, not itemized). Note that a taxpayer and spouse may each claim the $750 credit, for a total credit of $1,500. For a taxpayer and spouse to each claim a $750 credit, there must be two separate donations to an SGO, one in the taxpayer’s name and one in the spouse’s name.
Recordkeeping is crucial—both for the donor and your organization. Retain records of donations received and scholarships awarded. Further, send a receipt or letter to the donor that indicates the donation was made to an approved SGO and is eligible to be taken as a nonrefundable credit on their Ohio income tax return. This not only notifies the taxpayer of the credit, but it also provides proof that the contribution was made to an SGO in the event the Ohio tax commissioner requests substantiation for the taxpayer’s claim for the credit.
Scholarship Granting Organizations
To be eligible for certification as an SGO, your organization must be a religious or nonreligious 501(c)(3) that primarily awards academic scholarships for students to attend K-12, while prioritizing awarding scholarships to low-income students. In Ohio, SGOs include organizations that provide scholarships directly to qualified students and those that distribute scholarship funds to qualified participating schools.
Registering as an SGO
Register by completing the certification application and be ready to electronically submit the following documents:
- The organization’s formation documents
- The organization’s bylaws
- Documentation showing that the organization gives priority to low-income students when processing awards for academic scholarships
- Documentation showing that the organization primarily gives academic scholarships to primary and secondary school students when processing awards for academic scholarships
- A notarized statement indicating how the organization meets the requirements for certification
The application also asks for the amounts of the following expenses for the most recently completed fiscal year (unless the organization has not yet completed its first fiscal year):
- Total expenses
- Program service expenses
- Academic scholarship expenses
- Low-income scholarship expenses
Applications can take up to 30 days to be processed, and eligibility for the credit is determined by when the donation is made in relation to the SGOs certification date. For example, applying by August 31, 2022, ensures that the SGO will be certified on October 1, 2022, and this means donations made on or after October 1, 2022, are eligible for the credit on the donor’s 2022 tax return.
Note that Indiana has a similar program for SGOs.
If you have any questions on Scholarship Granting Organizations, or how this new tax law impacts your organization, please contact your Blue & Co. advisor.