Note: This post was previously published by Chris at seekingalpha.com on June 11th, 2019. This article is intended purely for educational purposes and anyone seeking financial advice should do so from a professional.
Okay, I admit the title is somewhat "clickbait" but I wanted to draw some attention to a tax credit that allows people living in Illinois to donate their entire state income tax liability to charity. In Illinois we pay state income tax of 4.95%: if you earn $100,000 per year, you would pay somewhere around $4,950 in taxes (or a little less, depending on deductions and exemptions).
The Invest In Kids tax credit is a 75% non-refundable tax credit that allows you to direct this tax money to a cause you support: education. There are a few restrictions:
The money must go to a private, non-profit primary or secondary school. The money must be used for need-based financial aid.
You can donate as much as your entire state income tax liability to fund need-based financial aid at the private non-profit school of your choice. For example, let's say the total tax you will owe to Springfield is $750. If you chip in an extra $250, you can direct the entire pot to a cause you support. In effect, the State of Illinois is matching donations you make to these causes at a 3-to-1 ratio, up to and including every dollar you paid in tax.
How do I get the credit?
You need to find out which scholarship granting organization provides scholarships for your chosen school. Private non-profit education scholarships are made through an umbrella organization, not the individual school. For example, scholarships for most Chicago-area Catholic schools go through the Big Shoulders Fund, while there are several different funds that cover most of the various Protestant schools. (Full disclosure: I serve on the board of one of the scholarship granting organizations, Bright Promise Fund.) When you make a contribution through Invest In Kids your donation goes to the scholarship granting organization, but you can earmark it for your chosen school. If you're not sure which organization provides scholarships for a particular school, you can contact the school directly or ask me and I'll be happy to help.
You need to create a My Tax Illinois Individual account. To do this go to mytax.illinois.gov and click the individuals tab along the top of the screen. Under the "Miscellaneous" column choose "Request Letter ID". You will need this number to activate your individual account. When you receive the letter ID (I received mine a few days later in the mail) go back to mytax.illinois.gov and click the "Sign-Up Now" link. You'll need to enter the letter ID to activate your individual account.
You need to get a Contribution Authorization Certificate to send with your donation. The Contribution Authorization Certificate flags your contribution as an Invest in Kids-eligible donation. After you activate your account and log in, you should see either your name or the word "Individual" in the middle of screen; click it. On the next screen you will see a column that says "I want to" on the right side of the screen. Underneath that column you will see an option that says "Contribute to Invest In Kids." Follow the instructions to pick one of five regions in Illinois, then a scholarship granting organization. Once you've submitted this form, you should be able to find a Contribution Authorization Certificate in the "Correspondence" tab on the main MyTax Illinois screen.
You need to send your full donation to the scholarship granting organization along with your Contribution Authorization Certificate. You will make your check payable to the scholarship granting organization, not the school, so make sure to tell the scholarship granting organization which school you want your money to go to. You must make the check payable for the entire amount, including the portion that's effectively coming from Illinois – you will get that back as a credit when you file your income tax return on the next April 15th. Make sure to send the Contribution Authorization Certificate with the check.
You need to claim the credit when filing your income tax return. The credit is included in Schedule 1299-C – I recommend consulting an accountant or other licensed tax preparation professional for assistance with this.
Frequently Asked Questions
Here are the most common questions that people have asked me about the Invest in Kids Illinois state income tax credit. If you have other questions about it, please feel free to ask me.
Can I also get credit for this donation on my federal tax return?
No, this contribution cannot be recognized on both your federal and state return. As I mentioned above this credit is so big that you'll want to take it even though it's just on the state return.
Chris! I support public schools. Why would I want to do this?
Public schools are great! My mother taught in both public and private schools and I have tremendous respect for the parents, students, administrators, and especially the teachers associated with public schooling. While there are many good public school choices some families find themselves living in areas that don't have a good public school choice. The need based financial aid provided by the Invest In Kids tax credit can help provide an alternative for those families.
I'm interested but I need help getting the credit.
If anyone reads this article and is interested but feels like they need help going through the process, feel free to contact me. I'm happy to help free of charge. I try to pick something charitable to do with my business each year so it's no problem.