Incentives Watch: Taxpayers Devour Entire Annual Allocation of Scholarship Tax Credits by New Year’s Day


Despite the debate over whether scholarship tax credit programs are constitutional, there is no doubt that they are popular programs. Georgia’s cap of $58 million, allocated to its qualified education expense tax credit, was used up by January 1.

Georgia’s qualified education expense tax credit allows corporations and individuals to donate money to student scholarship organizations in exchange for income tax credits. Corporations may claim up to 75 percent of their tax liability, individuals may claim up to $1,000 and married couples filing jointly may claim up to $2,500 on their annual tax returns. Taxpayers are allowed to carry forward any unused tax credits for up to five years.

With the exception of Florida’s credit cap of $357.81 million and Pennsylvania’s $60 million cap, Georgia has one of the highest credit caps.  However, proponents of the tax credit will likely urge the Georgia legislature to pass a cap increase for future years. The Georgia legislature is back in session January 12, so it is possible this hot button issue will arise this year.

As strong as the support for the tax credit is, there is an equally strong opposition, mostly based on the constitutionality of the tax credit programs. The debate exists in Georgia and the 13 other states that offer some type of scholarship tax credit.

Opponents of the tax credit argue that it violates the constitution by interfering with separation of church and state. Proponents highlight the opportunity afforded to low- and middle-class income families through the tax credit and argue that any money flowing to religious institutions is indirect.

Although there is an ongoing debate regarding the constitutional validity of scholarship credits, the popularity of scholarship tax credits, as illustrated by Georgia, will continue on as well.

Continue the conversation on Bloomberg BNA’s State Tax Group’s LinkedIn page: Should Georgia increase the cap on its qualified education expense tax credit?

Sign up for a free trial of the Bloomberg BNA Premier State Tax Library for more information on state individual income taxes and tax credits.

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