Education Improvement Scholarships Tax Credits

McMahon Parater Foundation for Education

1

Program Overview

2

Overview: 65% in Virginia Tax Credits

According to Virginia’s new Education Improvement Scholarships Tax Credits program, donations to approved foundations will provide scholarships for low-income new students at Virginia non-public schools.

Individual or Business Donors then receive Virginia TAX CREDITS equal to 65% of the donation.

As of January 2014, tuition tax credit programs exist in 13 states.

Virginia has allocated $25 million in tax credits for each year.

The Virginia Education Improvement Scholarships Tax Credits program will continue until January 1, 2028.

3

Benefits for Donors

Individuals can use the Tax Credits against their Virginia personal income tax liability.

Businesses can claim the Education Improvement Scholarships Tax Credits against:

− Virginia Corporate Income Taxes

− Virginia Bank Franchise Tax

− Virginia Insurance Premiums License Tax

− Virginia Public Service Corporations Tax

− Personal Income Taxes via pass-through entities such as S-Corporations, LLCs and Partnerships

IMPORTANT: Donors should consult their tax advisors to determine their specific tax savings.

4

Additional Tax Savings

In addition to a 65% Tax Credit, individuals and businesses may also receive federal and state deductions for a charitable contribution, and therefore achieve tax savings in two ways:

− Donors who itemize are able to take a deduction of the full amount of the contribution against taxable income as a charitable donation on both federal and state income taxes.

• The tax reduction equals the contribution amount times the tax rate of the applicable tax (federal or state).

• Subject to rules governing deductibility of charitable contributions

IMPORTANT: Donors should consult their tax advisors to determine their specific tax savings.

5

Tax Benefit to Individuals: Example #1

Individual circumstances may vary. Please consult your tax advisor to discuss your specific tax savings.

Donation Amount (Federal non-AMT taxpayer)

$1,000 $5,000 $10,000

Tax Savings:

VA Tax Savings at 5.75% rate 58 288 575

Federal Tax Effects at 33% rate *

Savings from Federal charitablededuction

330 1,650 3,300

Less – Cost of reduceddeduction for VA taxes

-233 -1,167 -2,335

VA Tax Credit – 65% 650 3,250 6,500

Total Tax Savings 804 4,020 8,040

Net Cost of Donation $196 $980 $1,960

Individual taxpayer NOT subject to Federal Alternative Minimum Tax

* Pease Limitation, reinstated Jan. 1, 2013, may impact actual federal tax savings.

6

Tax Benefit to Individuals: Example #2

Donation Amount (Federal AMT taxpayer)

$1,000 $5,000 $10,000

Tax Savings:

VA Tax Savings at 5.75% rate 58 288 575

Federal Tax Savings at 28% rate * 280 1,400 2,800

VA Tax Credit – 65% 650 3,250 6,500

Total Tax Savings 988 4,938 9,875

Net Cost of Donation $13 $63 $125

Individual taxpayer who IS subject to Federal Alternative Minimum Tax

Individual circumstances may vary. Please consult your tax advisor to discuss your specific tax savings.

* Pease Limitation, reinstated Jan. 1, 2013, may impact actual federal tax savings.

7

Tax Benefit to Businesses: Example

Donation Amount $1,000 $5,000 $10,000

Tax Savings:

VA Tax Savings at 6% rate 60 300 600

Federal Tax Effects (at 34% rate) *

Savings from Federal charitablededuction

340 1,700 3,400

Less – Cost of reduceddeduction for VA taxes

-241 -1,207 -2,414

VA Tax Credit – 65% 650 3,250 6,500

Total Tax Savings 809 4,043 8,086

Net Cost of Donation $191 $957 $1,914

Business taxpayer at 34% Federal and 6% Virginia rates

Individual circumstances may vary. Please consult your tax advisor to discuss your specific tax savings.

* Pease Limitation, reinstated Jan. 1, 2013, may impact actual federal tax savings.

8

Donating Appreciated Stock: ExamplePlease consult your tax advisor to discuss your specific savings. Non-AMT Taxpayer AMT Taxpayer

Market Value of Donated StockCost Basis of Stock

Capital Gain

$10,0003,0007,000

$10,0003,0007,000

Savings from Not Having to Pay Taxes on the Capital Gain

Federal Tax Savings (23.8% Rate) * 1,666 1,666

Virginia Tax Savings (at 5.75% Rate) 403 403

Total Savings from Not Having to Pay Tax on Capital Gains 2,069 2,069

Tax Savings from Donation (Excluding Savings on Capital Gains) **

Virginia Tax Credit (65%) 6,500 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

Virginia Tax Savings (at 5.75% Rate) 575 575

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

* 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.

9

Eligible Donations

The minimum donation to receive Tax Credits through this program is $500.

The maximum annual donation for individuals is $125,000.

There is no maximum limit for any business entity, including sole proprietorships.

Donations may be monetary or marketable securities.

The amount of the Tax Credits may not exceed the Virginia tax liability for the year in which the credits are claimed, however…

− Tax Credits may be carried over for the next five succeeding years.

10

Administrative Costs

By statute, at least 90% of the donation must be used to provide scholarships.

Foundations may use up to 10% of the donation to cover the costs of administering the scholarship program.

MPFE will make every effort to minimize its administrative costs, in order to provide the maximum in tuition assistance for Catholic school students.

11

Student Eligibility

12

Student Eligibility - Financial

Students without a disability Students with a disability (the

student has an educational program in accordance with federal IDEA)

Persons in family/

household

Federal Poverty

guideline

300% of Federal Poverty guideline

300% of PovertyIncome Range

400% of Federal Poverty guideline

400% of PovertyIncome Range

1 $11,490 $34,470 $45,960

2 $15,510 $46,530 $0 - $46,530 $62,040 $0 - $62,040

3 $19,530 $58,590 $46,531 - $58,590 $78,120 $62,041 - $78,120

4 $23,550 $70,650 $58,591 - $70,650 $94,200 $78,121 - $94,200

5 $27,570 $82,710 $70,651 - $82,710 $110,280 $94,201 - $110,280

6 $31,590 $94,770 $82,711 - $94,770 $126,360 $110,281 - $126,360

7 $35,610 $106,830 $94,771 - $106,830 $142,440 $126,361 - $142,440

8 $39,630 $118,890 $106,831 - $118,890 $158,520 $142,441 - $158,520

In order to qualify for a scholarship under this program, students’ family income must fit into one of these categories:

13

Student Eligibility – New to the School

In addition, students receiving the scholarships must be residents of Virginia, and fit one of these criteria:

− are eligible to enter kindergarten or first grade, OR

− attended a Virginia public school for at least half of the current or prior school year, OR

− were not Virginia residents during the preceding school year, OR

− were prior recipients of a scholarship under this program.

14

Scholarship Allocation

Scholarships are allocated by MPFE to students from qualifying families in the spring and summer prior to the upcoming school year.

Families seeking financial aid complete a FACTS application, including supporting documents, by March 1 for existing families or June 1 for new families and families with non-W2 income.

As the statute requires, distribution of the donated scholarship funds must be completed no later than June 30 of the fiscal year following the fiscal year in which the donation was made.

15

Scholarship Amounts:Example #1 – Richmond area

The Commonwealth of Virginia has established maximum scholarship amounts per student, determined by the student’s city or county of residence.

VA School Division (where student

resides)

2013-14 State Share of SOQ Funding*

Projected 2013-14 ADM*

2013-14 Scholarship Limit based on 100% State Share of SOQ Funding Per Pupil*

Richmond (city) $97,740,800 21,796 $4,484

Henrico County $218,415,343 49,365 $4,424

Chesterfield County $263,517,907 57,835 $4,556

Hanover County $77,853,445 17,871 $4,356

Petersburg $22,961,207 4,001 $5,739

Colonial Heights $11,860,586 2,753 $4,308

*Note 1: 2013-14 state share of Standards of Quality (SOQ) funding and Projected Average Daily Membership (ADM) based on the Reenrolled HB 1500 amendments to the 2012-2014 Biennial Budget. *Note 2: Section 58.1-439.28 E., Code of Virginia, reads: "The aggregate amount of scholarships provided to each student for any single school year by all eligible scholarship foundations from eligible donations shall not exceed the lesser of (i) the actual qualified educational expenses of the student or (ii) 100 percent of the per-pupil amount distributed to the local school division (in which the student resides) as the state's share of the standards of quality costs using the composite index of ability to pay as defined in the general appropriation act."

16

Scholarship Amounts:Example #2 – Tidewater

The Commonwealth of Virginia has established maximum scholarship amounts per student, determined by the student’s city or county of residence.

VA School Division (where student

resides)

2013-14 State Share of SOQ Funding*

Projected 2013-14 ADM*

2013-14 Scholarship Limit based on 100% State Share of SOQ Funding Per Pupil*

Virginia Beach $292,740,903 68,054 $4,302

Portsmouth $74,564,584 14,253 $5,232

Suffolk $65,965,369 13,804 $4,779

Newport News $140,074,907 27,292 $5,132

Chesapeake $186,769,795 38,665 $4,830

Norfolk $148,175,997 29,821 $4,969

*Note 1: 2013-14 state share of Standards of Quality (SOQ) funding and Projected Average Daily Membership (ADM) based on the Reenrolled HB 1500 amendments to the 2012-2014 Biennial Budget. *Note 2: Section 58.1-439.28 E., Code of Virginia, reads: "The aggregate amount of scholarships provided to each student for any single school year by all eligible scholarship foundations from eligible donations shall not exceed the lesser of (i) the actual qualified educational expenses of the student or (ii) 100 percent of the per-pupil amount distributed to the local school division (in which the student resides) as the state's share of the standards of quality costs using the composite index of ability to pay as defined in the general appropriation act."

17

Scholarship Amounts:Example #3 – Southwest VA

The Commonwealth of Virginia has established maximum scholarship amounts per student, determined by the student’s city or county of residence.

VA School Division (where student

resides)

2013-14 State Share of SOQ Funding*

Projected 2013-14 ADM*

2013-14 Scholarship Limit based on 100% State Share of SOQ Funding Per Pupil*

Lynchburg (city) $37,307,077 8,024 $4,649

Bedford County $45,800,607 9,326 $4,911

Roanoke (city) $58,794,126 12,623 $4,658

Amherst County $21,573,407 4,109 $5,250

Bristol (city) $11,678,246 2,176 $5,367

Danville (city) 32,626,869 6,074 $5,372

*Note 1: 2013-14 state share of Standards of Quality (SOQ) funding and Projected Average Daily Membership (ADM) based on the Reenrolled HB 1500 amendments to the 2012-2014 Biennial Budget. *Note 2: Section 58.1-439.28 E., Code of Virginia, reads: "The aggregate amount of scholarships provided to each student for any single school year by all eligible scholarship foundations from eligible donations shall not exceed the lesser of (i) the actual qualified educational expenses of the student or (ii) 100 percent of the per-pupil amount distributed to the local school division (in which the student resides) as the state's share of the standards of quality costs using the composite index of ability to pay as defined in the general appropriation act."

18

A Great Deal for Virginia Taxpayers

Donation Amount $4,985

90% of donation becomes scholarship 4,484

Donor receives 65% of donation in tax credits 3,240

Virginia budget savings per student $1,244

Richmond example

Virginia Beach example

Donation Amount $4,780

90% of donation becomes scholarship 4,302

Donor receives 65% of donation in tax credits 3,107

Virginia budget savings per student $1,195

Roanoke example

Donation Amount $5,176

90% of donation becomes scholarship 4,658

Donor receives 65% of donation in tax credits 3,364

Virginia budget savings per student $1,294

19

Scholarships for Catholic School Students

20

Diocese of Richmond Scholarships

The McMahon Parater Foundation for Education (MPFE) is one of 15 foundations approved by the Virginia Department of Education to receive donations under this program.

MPFE provides scholarships to students attending the 29 Catholic schools in the Diocese of Richmond.

21

Donating Scholarships

Contributions to MPFE under this program are used to provide scholarships to Catholic schools in the Diocese of Richmond.

Donors may request that their contributions support scholarships at specific Catholic schools. However, if there are not enough qualified applicants at the specified school, the scholarships will be awarded to students at other Catholic schools in the Diocese.

Donors may not direct their funds to support a specific student.

Direct contributions to a school for other purposes or other scholarships do not qualify for Tax Credits under this program. Only gifts given to MPFE that have been pre-approved specifically for this program are eligible for these Tax Credits.

22

Process for Obtaining Tax Credits

Obtains blank Preauthorization Form & Letter of Intent and sends the completed documents to MPFE.

Files the Preauthorization Form with the Virginia Department of Education (DOE).

Signs the numbered Preauthorization Notice and sends to MPFE with the donation payment within 180 days.

Notifies DOE that the donation has been received, and sends Donor receipt letter.

Donor

MPFE

MPFE

DOE

Donor

Authorizes and mails a numbered Preauthorization Notice to the Donor.

DOE Sends the Tax Credit certificate to the Donor.

For more information, please contact

Joyce SchreiberDirector of School DevelopmentCatholic Diocese of Richmond(804) 622-5190jschreiber@richmonddiocese.org

www.richmonddiocese.org/mpfe

McMahon Parater Foundation for Education