New Hampshire’s Education Tax Credit
Do you owe tax to the State of New Hampshire? Would you rather give your dollars to local NH children in need, as well as receive a substantial tax credit?
Available to businesses and individuals who owe New Hampshire business profits tax (BPT), business enterprise tax (BET), or interest and dividends tax (I&D) is an Educational Tax Credit. This credit, equal to 85% of the donation, has been available in NH since 2013 and the $6M cap has never been fully utilized, meaning there is ample opportunity to fund scholarships for low- and middle- income K-12 students. In addition to supporting a child’s future, there is a real monetary incentive to utilizing this credit which is outlined in the example below.
How It Works
A business or individual that owes BPT, BET or I&D tax is eligible to apply for the Educational Tax Credit (ETC). It is simple to apply through the New Hampshire Department of Revenue Administration and the response time is quick – usually within 2-3 weeks.
In lieu of paying the State of NH for the tax due, a business or individual makes a scholarship donation to an eligible organization, such as the Children’s Scholarship Fund, and receives a credit from NH worth 85% of their donation. In addition, a portion of the donation is deductible for federal purposes. The combined federal and state tax savings ends up representing a sizeable portion of the cash outflow for the donation.
To apply, complete NH Form ED-02 and mail to the New Hampshire Department of Revenue Administration. The mailing address for the NH DRA is located at the bottom of this quick and painless one page form. The donation (and therefore the application) must take place during the tax year for which the taxpayer is claiming the deduction/credit. For instance, a 2019 donation must take place before 12/31/19.
Once approved, the NH DRA will mail the taxpayer a written acceptance letter. The donation needs to take place within 60 days of receiving approval. The taxpayer writes a check to the scholarship organization of choice.
After donating, the taxpayer will receive an Education Tax Credit Scholarship Receipt, which must be included with the NH State Tax Return.
With minimal paperwork, you as a taxpayer have ensured that a New Hampshire child in need has an opportunity to attend a school he or she otherwise would not be able to, all while obtaining a tax benefit.
Before the use of this credit, DC, Inc. owes $85,000 in New Hampshire BPT.
DC, Inc. applies for a tax credit via Form ED-02. Application is accepted.
DC, Inc. writes a check to the Children’s Scholarship Fund for $100,000.
Children’s Scholarship Fund mails DC, Inc. an Education Tax Credit Scholarship Receipt.
DC, Inc. applies a tax credit of $85,000 against its BPT, which brings NH taxes due to $0.
This results in a NH tax savings of $85,000.
Federal tax laws include some caps on charitable contribution deductions. One such rule limits the deduction to the amount of the outlay that did not generate a state-level credit. In our example, this would result in a federal deduction of $15,000 ($100,000 – $85,000). With the 21% rate, this results in a federal tax savings of $3,150.
Total combined federal and state tax savings is $88,150. In other words, it cost you only $11,850 to provide a benefit of $100,000.
- The ETC has a 5 year carryforward provision for BPT/BET. There is no carryforward for I&D.
- Each business or individual can donate up to $600,000 per year.
- A donation can be made to a scholarship fund even when no tax is due. However, the credit can eliminate only otherwise-due tax liability. It cannot “go negative” by refunding taxes not incurred. Any excess can be carried forward for BPT/BET purposes.
- The business does not need to be located in NH to take advantage of the credit. Any business with BPT/BET tax is eligible.
For more information on New Hampshire’s Education Tax Credit, please contact your BNN tax advisor at 800.244.7444.
Disclaimer of Liability: This publication is intended to provide general information to our clients and friends. It does not constitute accounting, tax, investment, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.