The state has recently launched a new program designed to rebuild and refocus emphasis on higher education in California. The program is designed to provide funding for low income college and university students to help pay for the cost of housing and books. The good news for taxpayers (individual and corporate) is significant credits for those who elect to make a contribution. The fund, known as the College Access Tax Credit Fund, was signed into law last year, but the opportunity to save spans a four-year period. If you didn’t apply to receive a credit for 2015, you will not be able to receive a benefit on this year’s return. However, the good news is that if you are interested in contributing, there is still plenty of time to apply for the credit for 2016. To help clients, prospects, and others understand the process and tax benefits they can realize, JLK Rosenberger has provided a brief summary below.
Tax Credit Rates
The CATC is available for taxable years 2014 through 2017. The amount of credit that a taxpayer can claim on their state income tax return varies by year. The credit is a percentage of the total amount contributed in each tax year. Below is a list of the percentages for the remaining tax years:
- 55 percent for 2015
- 50 percent for 2016
- 50 percent for 2017
Applying for the Credit
As stated previously, taxpayers need to apply for the credit before any claims can be made. In order to do this, they must have the Fund contribution certified by the California Education Facilities Authority (CEFA). Total allotted credits are capped at $500 million per calendar year and applications will be processed on a first come, first served basis. The application period for the 2015 tax year is July 1, 2015, through January 4, 2016. Note that unused credits may be carried over for six years—so even if you can’t use the entire credit you’re awarded, you’ll be able to apply it to a future year.
The benefit of the credit will depend upon each taxpayer’s profile. The credit can be used to offset state tax, including reducing the tax below tentative minimum tax. Beyond this, taxpayers may also be able to claim a charitable deduction on their federal tax return yielding additional benefits. There are specific rules governing how a taxpayer can claim both the state credit and federal deduction, so it is essential to consult with your tax advisor to determine the optimal arrangement for your tax situation.
Claiming the Benefit
Jon Smith applies for a CATC reservation on December 1, 2014. His proposed contribution is $10,000. CEFA grants a $6,000 credit reservation (60% × $10,000) on December 10. Jon makes a $10,000 contribution to the fund on December 17, 2014. CEFA mails his $6,000 credit certification on December 23. Jon may claim a $6,000 credit on his 2014 California tax return, and claim a $10,000 charitable contribution on his federal return. Unfortunately, Jon will not be able to claim the charitable contribution on his state return. California does not permit a taxpayer to claim a credit and a deduction for the same contribution.
As the end of year is approaching, taxpayers are searching for ways to reduce their tax liability. Consider a contribution to the College Access Tax Credit Fund in 2016 to reduce your state and federal tax burden while helping those in need. If you would like more information on the CATC, JLK Rosenberger wants to help! For additional information please contact us at 818-334-8623, or click here to contact us. We look forward to speaking with you soon!