What Are Tax Credit Scholarships?

What Are Tax Credit Scholarships?

The State of Indiana launched the Tax Credit Scholarship Program in 2010 and has been distributing private school scholarships to Indianapolis private schools ever since. So, just what are tax-credit scholarships? Well, the State of Indiana offers donors tax credits for contributing to the Scholarship Granting Organizations (SGO’s). These are nonprofits that distribute private school scholarships to students from low-income families and middle income households. 

Over 9,500 scholarships were awarded in 2021 with an average scholarship value landing right around $2,400 per student per year.  Nearly 362 schools in the State of Indiana, including Indianapolis private schools and private Christian schools in Indianapolis participate. The program has been successful, as nearly 80% of families with children who were income eligible received funds.

How Are Scholarships Funded?

Tax-Credit Scholarships come from donations made to one of many scholarship granting organizations (SGOs), who fund the scholarships for the students in Indiana. Whether it’s a corporation or individual, they may receive 50% tax credits for their donations into the SGO’s. In the 2021-22 school year, Indiana allocated $17.5 million meant for SGO donations, while in 2022-23 it rose to $18.5 million. The scholarship granting organizations determine the scholarship value.

Unlike a tax deduction where your charitable donation can be removed from your taxable income, a credit can directly reduce your tax liability “off the bottom line.”

Currently, there are six SGOs participating in the program. They are as follows: Community Foundation of Elkhart County, Institute for Quality Education, Inc, The Lutheran Scholarship Granting Organization of Indiana, Inc, Professional Athletes of Indiana, Sagamore Institute Scholarship for Education Choice, and the School Scholarship Granting Organization of Northeast Indiana, Inc.

How Can I Donate and What Are the Limits?

There are several ways you can donate to SGO’s including cash, checks, credit and debit cards, securities (including stocks and bonds), gifts of grain, qualified retirement fund charitable rollover, and donor advised funds (DAF). It’s always a good idea to consult your accountant before making a charitable gift donation.

There are no limits to how much or how often a donor can contribute to an SGO, however the entire tax credit program cannot award more than the cap for that fiscal year. The SGO program also allows you as the donor to designate your donation for a specific school. At this time, you are not allowed to earmark your donation for a particular student.

How Does a Tax Credit Work?

Here is an example of how your tax credit works within the Indiana tax credit scholarship program. You may contribute $1,000 to an SGO of your choice in the State of Indiana while there are still tax credits available. This may take off $500 off of your Indiana tax liability, reducing what they owe to the state by $500. Additionally, you are able to take the federal deduction. The out of pocket cost for the $1,000 donation to help the student is $360 with the federal deduction. The same donation without the tax credit would be $720 out of pocket.

Who Is Eligible For Tax Credit Scholarships?

Children are eligible to receive scholarships if their family income does not exceed 300% of the guidelines needed to qualify for free or reduced school lunch. This number was $147,075 for a family of four in 2021-22. Parents of current private school students between the ages of 5 to 22 are eligible to apply. Students who also receive aid via Indiana’s School Choice Voucher Program are also eligible to receive funding via tax credit scholarship programs, provided that the combination of the two does not exceed the total for tuition and fees. Students who have received an SGO scholarship in the past are eligible to receive an SGO scholarship or voucher  for the current year in the future as long as the program requirements are met.

To apply for an SGO scholarship, the parent or guardian should contact the participating school in which they intend to enroll their student. The school will work with the parent or guardian to complete the SGO scholarship application process. There is no minimum that an SGO can award to an eligible student.

Are SGO’s & Vouchers the Same Thing?

No. The official name for the voucher program in the State of Indiana is a “School Choice Scholarship.” One key difference between SGO scholarships and vouchers is that an SGO are funded by charitable donations, whereas vouchers are funded by state tax distributions. 

How Can Central Christian Academy Help You?

Central Christian Academy is a proud participating school in the State of Indiana Tax Credit Scholarship Program. Contact us today to find out how you can get the admissions and application process going!