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Do a Good Deed ... Be An EITC Donor, Get PA Tax Credits

Pennsylvania’s updated Educational Improvement Tax Credit (EITC) program now allows individual taxpayers as well as businesses to support Catholic schools and in return receive PA tax credits.

Over $100 million in EITC tax credits are available this year. However, these credits are quickly reserved by taxpayers across the state from Pittsburgh to Philadelphia. It is necessary to act as soon as possible.

Our Board of Trustees is reaching out to all in our Divine Mercy family. We are asking for local people who have the means to help Catholic education here in Johnstown by applying for EITC credit dollars. The funds will be used for tuition assistance at Divine Mercy, and those who donate will receive money back in the form of PA tax credits. It is truly a WIN/WIN program.

Divine Mercy is able to take part in the EITC program through the Central PA Scholarship Fund, established by Randy Tarpey, a CPA with offices in Tyrone, PA. Through this fund, there are no administrative charges to DMCA, and donor privacy is protected.

The fund collects the applications on behalf of Divine Mercy, bundles them into SPEs (Special Purpose Entities), and submits them to the PA Department of Community and Economic Development. The state then reviews all applications and issues letters of approval. After approval, donors then have 60 days to submit their contribution in full.

Checks are written to the SPE (currently MicroPlusPlus) designated by the Central Pennsylvania Scholarship Fund, and are mailed directly to the Central Pennsylvania Scholarship Fund in Tyrone. The fund then completes necessary paperwork and forwards the bundled SPE contributions on to the state. The PA Department of Community & Economic Development mails tax credit notices (K-1 Forms) directly to donors in early 2021 for use when they prepare their 2020 tax returns.

Minimum contribution to participate in this plan is $3,500 per taxpayer. This is approximately the amount of Pa income tax that would be owed on $100,000 of earned income, perhaps by a married couple who each earn $50,000 and file their taxes jointly. Higher earning taxpayers may contribute more as they wish up to the amount of their PA tax liability.

Donors who join the EITC program for one year will receive a PA Tax credit of 75% of the amount they contribute. Donors who wish to make a two year commitment to the program receive a 90% tax credit. Many taxpayers may also claim a federal tax deduction for the full amount of their charitable contribution when they prepare their 2018 federal tax return.

Paperwork for this program is very easy. Download the application (Joinder Form) below, and take a look. It asks for name, address and social security number, then the amount you wish to contribute in the first year, and amount you wish to contribute in the second year. The form does ask for income information or copies of tax returns.

Finally you are asked to designate what school you want to receive your contribution. You may split your contribution among several schools, although the hope is that Divine Mercy donors will contribute only to Divine Mercy Catholic Academy, at least in the first year. The amount you agree to contribute is due in full within 60 days of receiving confirmation/approval from the Central PA Scholarship Fund.

We have spoken with several local accounting firms, and in their words: “Pennsylvania’s EITC program is almost too good to be true, but it is!” They advise interested donors to apply as soon as possible before 2018’s available tax credits are all claimed.

The information presented here is intended as a general overview of Pennsylvania’s EITC program, and is not to be considered tax advice. Situations vary, and we urge donors to consult with their accountant or tax professional before joining this program.

Please call or e-mail Divine Mercy Business Manager Maria Sanders if you have any questions, and she will see that you are connected with an EITC expert.  Maria’s phone is (814) 248-3811, 8:30 AM to 4 PM Monday thru Friday. You may also use the Contact Form on this web site to send Maria an e-mail.

Below are answers to some frequently asked questions.

Q. When was the Central Pennsylvania Scholarship Fund formed? When were related SPEs established?

Randy Tarpey established the Central Pennsylvania Scholarship Fund on September 13, 2011. With the amendment to Article XVII-F of the Tax Reform Code through Act 194, effective October 31, 2014, the EITC/OSTC definition of “business firm” and “pass-through entity” was expanded to allow for the use of credits on joint and personal income tax returns. As such, Randy has established several Special Purpose Entities and will continue to do so as the credits are released. Special Purpose Entity is a new class of pass-through partnerships that exists solely for the purpose of obtaining Education Improvement Credits (EITC/OSTC).

Q. Who is Randy Tarpey?

Randy Tarpey has been a Certified Professional Accountant, License Number CA032075R, since 1993. His firm has several locations in Central Pennsylvania. Active in both his profession and the community, Randy gives freely of his time to the Central Pennsylvania Scholarship Fund.

Q. Why did Randy Tarpey create the Central Pennsylvania Scholarship Fund?

With a passion to help more children in Pennsylvania receive a quality, Christian education, Randy Tarpey established the Central Pennsylvania Scholarship Fund. This vehicle for giving allows individuals and other legal entities not qualified to receive credits directly from Pennsylvania an opportunity to receive the same tax benefit. ** The Second Century Scholarship Fund works in partnership with the Central Pennsylvania Scholarship Fund to award scholarships to Catholic schools in the Altoona Johnstown Diocese.

Q. Who can receive education credits through the SPE?

The Special Purpose Entity offers membership to individuals/couples with a minimum PA tax liability of $3500 annually.

Q. How long after I purchase credits until schools receives my donation?

Within 60 days following the receipt of the SPE’s approval letter from the Commonwealth of Pennsylvania and upon completion of member payment, the SPE will make payment to Diocesan schools (that are designated by you) in an amount equal to the credits awarded.

Q. Who holds the brokerage account? Is it FDIC or otherwise insured?

The Central Pennsylvania Scholarship Fund (CPSF) has bank accounts at local banks in Tyrone, Pennsylvania which are FDIC insured.

Q. What/who provides the oversight of the LLC/SPE?

Randy Tarpey is the SPE and CPSF leader, and his bonded CPA firm employees handle all funds. His firm is audited annually by another, unconnected CPA firm. Annual reports are filed with the Pennsylvania Department of Commerce and Economic Development (DCED). The Central Pennsylvania Scholarship Fund is licensed with and reports to the Pennsylvania Department of State Charity Commission annually.

Q. If I participate in these tax credits, how much will it cost me?

You will need to make either a minimum donation of $3500, or larger if you choose, up to the amount of your annual state taxes. When you file your taxes in the spring you will receive a refund of 90% of your donation from Pennsylvania and a federal benefit based on your donation.

Q. Do I need to earn a particular income to qualify?

This is based on tax liability, not income, therefore there each taxpayer’s situation will differ. An individual or couple filing jointly must have a state tax liability of $3,500 or more to participate. To see if you may qualify for 2018, you can find your PA tax liability on Form PA-40 Line 12 of your most recent tax return.

Q. Can these credits be used on both individual and joint income tax returns?

Yes, you qualify if your individual or combined PA tax liability is $3,500 or more.

Q. Do I have to be employed by a for profit business? What if I work for a business but my spouse works for a non-profit?

One member of the family must be employed by or own a for profit business. If one works for a business and the other a non-profit, and you file joint returns, both qualify for the purposes of determining tax liability

Q. Can I participate if I am retired?

If you are retired, you must own a small business (receive an annual K-1 form) or work for a business (receive an annual W-2 form) to qualify as a member of an SPE and receive EITC/OSTC tax credits. Some retirees qualify due to side jobs or residual ownership of businesses and some do not.

Q. Why must I commit to two years? Can I increase or decrease my tax credit donation amount the second year?

The Special Purpose Entity requires a two year commitment of at least $3500 per year in order that its members receive a 90% tax credit, (the State awards a 75% tax credit when you commit for only one year, or a 90% tax credit when you commit to two consecutive years). If unexpected circumstances occur that dictate your second year donation must be reduced from your original commitment, such as loss of job or reduction in tax liability, please contact the SPE. You may increase your donation in the second year up to the amount of your PA tax liability.

Q. How do I decide the amount to contribute in 2018 if I don’t know my tax liability for 2018?

If your income is consistent, use the amount from 2017 PA-40 Line 12. Please consult your financial professional for advice.

Q. When and where do I submit my application?

Your application may be submitted at any time during the remainder of 2018, until December 31to the Central Pennsylvania Scholarship Fund. Tax credits will be distributed on a first come first served basis until the funds which have been awarded to a Special Purpose Entity by the Department of Community and Economic Development are depleted. For federal purposes 100% of the donation/investment in the SPE is a charitable contribution deductible on your federal itemized deductions (Schedule A). Every donor incurs an upfront cost to make the donation. To calculate your specific benefit from the federal donation portion of this program you will need to calculate the value of your donation for federal purposes based on your regular or Alternative Minimum Tax (AMT) tax rate. The benefit range from 3% to 26% depending on your personal tax situation. You may also fax your application.

Q. Do I reapply each year?

Each year you are asked to reinvest. If you fail to do so, your membership is terminated.

Q. How do I indicate that which Catholic schools receive my contribution?

On your application form note in the space designated for Name of School, and indicate the tax credit amount for which you are applying in the place designated Amount $.

Q. Can I include my contribution check at the same time I submit my application? To whom do I write my contribution check?

You may include your contribution check with your application. Your check will be held by the SPE until 60 days after the tax credit award letter from DCED arrives. Your check should be written to the SPE that is indicated on the application. Please note ‘name of designated school(s)’ on the memo line of your check.

Q. What should I do after I receive application approval from the SPE?

Once you receive notification of approval from the SPE, write and mail your contribution check immediately. ** It is important to note that if the total amount of tax credits received by the SPE are distributed to other partners by the time your check is received, your check may be returned. Therefore, the sooner you are able to send your check, the more likely you are of being granted your tax credit.

Q. When will I receive documents to file with my income taxes?

Your Federal and State K-1 forms will arrive the first week of February, 2019. The Federal K-1 will list your investment and Federal charitable contribution, which you deduct on Schedule A if you itemize. Your PA K- 1 will list your 90% PA tax credit, which will go on Payment line 23 OC for Other Credit on your PA-40.

Q. What percentage of my contribution goes to the SPE and Scholarship Fund for administrative purposes?

100% of your contribution goes to the Catholic Schools you designate.  No portion of your donation is used for administrative purposes.

Q. How can I be assured that my contribution is given to schools that I designate?

You will receive an acknowledgement letter indicating your designation.

Q. When the school(s) receive my contribution, what is it used for?

Your contribution is strictly used for the school’s financial assistance program, distributed to need based families who make application through FACTS (financial assistance program). The EITC and OSTC tax credits were created by the legislature for the purpose of providing tuition assistance in the form of scholarships for eligible students.

Below is a link to the web site of the Central Pennsylvania Scholarship Fund. There you will find additional information about the workings of Divine Mercy’s EITC initiative as well as other scholarship programs.

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