On August 23, 2018, the Internal Revenue Service (IRS) released proposed regulations concerning state attempts to circumvent the state and local tax deduction (SALT) caps created by the 2017 tax law. However, the regulations actually go much further and may impact more than 100 programs in 33 states that provide state tax credits when the donor makes a charitable contribution. Under the rule, taxpayers who make a contribution to a charity and receive a state tax credit must decrease their federal charitable deduction by the amount of the state tax credit received for that donation. The main concern is that while states will still be able to provide tax credits, donors will have less incentive to give if the federal tax benefit of the donation is limited. Ultimately, the beneficiaries of the donations will be the ones to suffer.
For the independent school community, this rule may affect scholarship tax credit programs that benefit approximately 270,000 students across 18 states. Many of these programs are focused toward low-income students or students with disabilities and provide scholarship assistance to help families access educational opportunities.
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