1. Virginia’s Education Improvement Scholarships Tax Credits Program
“EISTC”

2. What is a “Tax Credit”?
A tax credit allows taxpayers to subtract the amount of the credit – dollar-for-dollar – from the total they owe the state in taxes, not from taxable income. Therefore, Tax Credits directly reduce tax bills.
What is the Virginia Education Improvement Scholarships Tax Credit?
Simply put, it provides state tax credits to persons or businesses making donations to approved scholarship foundations that, in turn, provide scholarships to eligible students to attend eligible nonpublic schools.
But not many people know about this tax credit yet, which is why we’re conducting this webinar to help you identify opportunities for your clients.

3. What is the “EISTC” Program?
The Education Improvement Scholarships Tax Credits program provides Virginia tax credits for persons or businesses making donations to approved scholarship foundations that, in turn, provide scholarships to eligible students to attend accredited private schools.
What is the Virginia Education Improvement Scholarships Tax Credit?
Simply put, it provides state tax credits to persons or businesses making donations to approved scholarship foundations that, in turn, provide scholarships to eligible students to attend eligible nonpublic schools.
But not many people know about this tax credit yet, which is why we’re conducting this webinar to help you identify opportunities for your clients.

4. How is This Charitable Donation Different from Others?
Donors receive Virginia tax credits for 65% of the full value of the donation.
Donors ALSO receive their usual state and federal charitable tax deductions.
Both individuals and businesses are eligible to receive these tax credits.
Tax credits (up to $25 million statewide) awarded on a first-come, first-served basis, subject to a Department of Education pre-authorization process.
Donations must be made to a scholarship foundation, not directly to a school.
This is a brief explanation of why this charitable donation is different from others.
Donors get a 65 percent state tax credit IN ADDITION to the usual state and federal charitable tax deduction.
Scholarship Foundations have to be approved by the Virginia Department of Education and all of the approved foundations are listed on the VA DOE website.

5. Scholarship Foundation (approved by Virginia Department of Education)
EISTC Program
Scholarship Foundation
(approved by Virginia Department of Education)
Individual or Business Donation
Private School Tuition Scholarships for Eligible Students
Here’s roughly the way it works.
An individual or Corporate donor makes a donation to an approved scholarship foundation.
That foundation, in turn, provides a tuition scholarship for eligible low and moderate income students.
Donor receives 65% of donation back in Virginia tax credits, plus federal and state deductions for charitable gifts.

6. McMahon Parater Foundation for Education
Which means…
McMahon Parater Foundation for Education
(Diocese of Richmond)
A Donation from You or Your Company
Scholarships for Eligible Saint Mary Star of the Sea Students
Here’s roughly the way it works.
An individual or Corporate donor makes a donation to an approved scholarship foundation.
That foundation, in turn, provides a tuition scholarship for eligible low and moderate income students.
You receive 65% of your donation back in Virginia tax credits, plus your usual federal and state deductions for charitable donations.

7. What Does This Mean for Donors?
Bottom line: What does it all mean for your clients – the potential donors?

8. Education Improvement Scholarships Tax Credits Program
Individual non-AMT Taxpayer
Donation Amount
(Federal non-AMT taxpayer)*
$1,000
$5,000
$10,000
Tax Savings*
Virginia Tax Credit (65%)
650
3,250
6,500
Federal Tax Effects (at 33% rate)**
Savings from federal charitable deduction
330
1,650
3,300
Less - Cost of reduced deduction for VA taxes
-233
-1,167
-2,335
VA Tax Savings (at 5.75% rate) 58
288
575
Total Savings
805
4,021
8,040
Net Cost of Donation
$195
$979
$1,960
Here’s an example of what this tax credit can mean for a non-AMT federal taxpayer, illustrating donation amounts at $1,000, $5,000, and $10,000.
We show here the effects of the Virginia Education Improvement tax credit, assume a federal tax rate of 33% and a state rate of 5.75%, and add back in the cost of the reduced federal deduction for state taxes.
While the donation is not made without some cost to the taxpayer, the effect is clearly superior to that of an ordinary charitable contribution. In essence, the “cost” of a donation is about 20% of the donation itself – this is a program that quite literally “turbo-charges” the value of a donation.
I need to point out that the “Pease limitation” on federal charitable deductions for certain high income taxpayers may impact the actual federal tax savings. Quite obviously individual circumstances may vary.
* Above demonstration is for individual taxpayers not subject to the Federal Alternative Minimum tax.
** Pease Limitation, reinstated Jan. 1, 2013, may impact actual federal tax savings.
Individual circumstances may vary.

9. Education Improvement Scholarships Tax Credits Program
Individual AMT Taxpayer
Donation Amount
(Federal AMT taxpayer)*
$1,000
$5,000
$10,000
Tax Savings*
Virginia Tax Credit (65%)
650
3,250
6,500
Federal Tax Savings (at 28% rate)**
280
1,400
2,800
VA Tax Savings (at 5.75% rate) 58
288
575
Total Savings
988
4,938
9,875
Net Cost of Donation
$12
$62
$125
Note that there is no deduction for state income taxes when calculating the tax for an individual subject to the federal Alternative Minimum Tax.
Therefore, the value of a donation is even greater for a donor falling under the AMT.
What we see here is a NET COST of as little as $125 for a $10,000 donation.
* Above demonstration is for individual taxpayers who ARE subject to the Federal Alternative Minimum tax.
** Pease Limitation, reinstated Jan. 1, 2013, may impact actual federal tax savings.
Individual circumstances may vary.

10. Education Improvement Scholarships Tax Credits Program
Business Taxpayer
Donation Amount
(Corporate taxpayer)*
$1,000
$5,000
$10,000
Tax Savings*
Virginia Tax Credit (65%)
650
3,250
6,500
Federal Tax Effects (at marginal 34% rate)**
Savings from federal charitable deduction
340
1,700
3,400
Less - Cost of reduced deduction for VA taxes
-241
-1,207
-2,414
VA Tax Savings (at marginal 6% rate) 60
300
600
Total Savings
809
4,043
8,086
Net Cost of Donation
$191
$957
$1,914
And here’s an example of a corporate donor, using corporate tax rates.
Slightly different numbers; same effect – a substantial donation at a relatively low cost to the donor.
* Above demonstration is for business taxpayers.
** Pease Limitation, reinstated Jan. 1, 2013, may impact actual federal tax savings.
Individual circumstances may vary.

11. What Happens with Appreciated Stock?
How is Appreciated Stock handled?

12. Using Appreciated Stock to Make the Donation
Non-AMT Taxpayer
AMT Taxpayer
Market Value of Donated Stock
Cost Basis of Stock
Capital Gain
$10,000
3,000
7,000
Savings from Not Having to Pay Taxes on the Capital Gain
Federal Tax Savings (23.8% Rate) *
1,666
Virginia Tax Savings (at 5.75% Rate)
403
Total Savings from Not Having to Pay Tax on Capital Gains
2,069
Tax Savings from Donation (Excluding Savings on Capital Gains) **
Virginia Tax Credit (65%)
6,500
Federal Tax Savings (33% Rate non-AMT/28% Rate AMT)
3,300
2,800
Less – Cost of reduced deduction for Virginia taxes
(2,335)
n/a
575
Total Savings from Donation (Excluding Savings on Capital Gains)
8,040
9,875
Total Savings from Donation of Appreciated Stock
10,109
11,944
Excess of Tax Savings Over Value of Stock Donated
$109
$1,944
Here’s an example of how appreciated stock is calculated for both AMT and non-AMT taxpayers.
The examples we showed for straight cash donations is even better for a donation of appreciated stock. The AMT taxpayer here not only is able to direct substantial resources to charitable organizations doing great things for low and working class children in Virginia, but the donor is actually better off for having made the donation.
This scenario only works if the basis in the stock is significantly less than the market value.
* Long Term Capital Gains Tax of 20% plus Affordable Care Act Surcharge of 3.8%.
** Pease Limitation, reinstated Jan. 1, 2013, may impact actual federal tax savings.
Individual circumstances may vary.

13. Donor Provisions: Turbo-Charging Your Donations!
Individuals must donate at least $500 and are limited to $125,000 per year.
$500 minimum but no maximum on business donations, including sole proprietorships.
May donate cash or marketable securities.
Amount of credits may not exceed tax liability in a given year. Unused credits may be carried over until total is taken, up to five additional years.
Donors may not direct scholarships to a particular student, but may designate a specific school.
Here’s where you get to turbo-charge your clients’ donations.
A donor gets a state tax credit equal to 65 percent of the value of the donation.
They can donate either cash or marketable securities.
They can take the federal AND a state tax deduction in the year they make the donation.
The one hitch is that they can’t claim the state tax CREDIT until the taxable year AFTER the year of the donation. This is to ensure that the loss of revenue to the state comes in the same year that the scholarship is given and the child leaves the public school system.
But – as we shall see – this is still one of the best charitable donations a donor can make, especially if an individual falls under the Alternative Minimum Tax.

14. Scholarship Recipients
Eligible Students:
Annual Household income less than 300% of poverty
$71,550 for family of four
Except Students With Disabilities: 400% of poverty
$95,400 for a family of four
Must be a resident of Virginia and
Enrolled in a Virginia public school for at least half of the prior or current year, or
Eligible to enter kindergarten or first grade, or
Not a resident of Virginia the preceding school year, or
A prior recipient of an EISTC scholarship.
Not all students are eligible.
There are very clear income limits, as you can see.
And there are residency requirements. Basically, a student either has to be new to the Virginia system – either new to the state or in kindergarten or first grade – OR the student has to be a public school student who is leaving the public system.
The reason for this is simple. By removing the state costs of educating a child in public school at the same time the state loses revenue from the tax credit, this is a tax credit that will be “revenue neutral.”
In fact, the state actually gains a bit of money because the cost of the tax credit is usually less than what the state pays for public education.
But we’ll leave that for the policy wonks to argue over.

15. How Do I Get Started?
All of this is a lot to absorb. So where can you get more information?

16. The Way It Works
A donor or the scholarship foundation receiving the donation must request preauthorization for a specific amount of tax credits from Virginia Department of Education (DOE).
If the donation is not made in whole or part within 180 days of issuance, the tax credit preauthorization is void.
Scholarship foundation notifies the DOE after receiving donation. DOE issues tax credit certificate. Donor attaches certificate to tax return.
This is the bureaucratic part:
The donor (or the scholarship foundation on behalf of the donor) has to request preauthorization for a specified credit amount from the Virginia Department of Education.
The donor must make the donation in whole or part within 180 days after that preauthorization is received. If it’s not made, the Department of Education sweeps it back to reassign it to someone else. If it’s only partially made, the Virginia Department of Education will re-assign the unexpended credits.
After the scholarship foundation receives the donation, they notify the Department of Education, which then sends a certificate to the donor to attach to their income tax return.

17. Step by Step…
Obtains blank Letter of Intent and Preauthorization Form and sends the completed documents to MPFE.
Donor
Files the Preauthorization Form with the Virginia Department of Education (DOE).
MPFE
Authorizes and mails a numbered Preauthorization Notice to the Donor.
DOE
Signs the numbered Preauthorization Notice and sends to MPFE with the donation within 180 days.
Donor
We’re hoping this provides a little graphic explanation.
The donor or foundation requests a preauthorization.
The Department of Education issues the preauthorization to the donor.
The donor must make a donation within 180 days.
The Foundation must certify the donation to the Department within 20 days of receiving it.
The Department issues a tax credit certificate to the donor.
The donor attaches it to the following year’s tax return.
Notifies DOE that the donation has been received, and sends Donor acknowledgement letter.
MPFE
DOE
Sends the Tax Credit certificate to the Donor.

18. Where Can I Get More Information?
All of this is a lot to absorb. So where can you get more information?

19. Saint Mary Star of the Sea School
Sr. Mary John Slonkosky, O.P.
Principal
(757)
Teresa Bunting
Business Manager
The Virginia Department of Education also has a website that’s chock full of information and here’s THAT web address.
Joyce Schreiber
Director of School Development
McMahon Parater Foundation
Catholic Diocese of Richmond
(804)