In 2021 the state of Ohio put in place a dollar for dollar credit of up to $750 per taxpayer for contributions to qualified Scholarship Granting Organizations ($1500 for those filing jointly and each spouse makes their own $750 contribution). While the credits were available for 2021, there were only a few scholarship granting organizations that had been approved in 2021, none of which were local. That has changed for 2022 and some local SGO’s have been soliciting for donations in the last couple weeks.
While the big news with regards to SGO’s is the state tax credit, SGO’s do qualify as 501(c)(3) charities and thus are eligible for a charitable deduction at the federal level. With that said, your federal deduction will generally need to be reduced by the state tax credit benefit that is received.
So let’s consider a couple examples of how this works.
Example 1 A single taxpayer contributes $750 to a qualifying SGO. The taxpayer will receive a nonrefundable $750 Ohio tax credit which reduces his or Ohio tax by $750. The taxpayer must reduce the federal charitable contribution amount claimed on Schedule A by the $750 credit, leaving no federal charitable contribution.
Example 2 A single taxpayer contributes $2,000 to a qualifying SGO. The taxpayer will receive a nonrefundable $750 Ohio tax credit which reduces his or Ohio tax by $750. The taxpayer must reduce the federal charitable contribution amount claimed on Schedule A by the $750 credit, leaving a federal charitable contribution amount of $1,250.
If you are considering making a charitable contribution to an SGO in the 2022 tax year, we would suggest that you do not make the contribution from a donor advised fund or qualified charitable distribution from an IRA since previous tax benefits may need to be recaptured (a donor advised fund will likely not allow it since there is a benefit being received).
A list of the currently eligible organizations can be found at https://charitable.ohioago.gov/Scholarship-Granting-Organization-Certification/List.
If you have any questions or would like to discuss how this can benefit you as well as the scholarship recipients, please feel free to reach out to a Cassady Schiller team member.
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