How to Apply for the PA Opportunity Scholarship Tax Credit

The Pennsylvania Opportunity Scholarship Tax Credit (OSTC) program offers an incentive for businesses to fund educational opportunities. It allows companies to receive a state tax credit when they donate to designated scholarship organizations. These organizations then use the contributions to provide scholarships for students. The program’s goal is to help students who live within the attendance boundaries of low-achieving schools afford tuition at a participating public or nonpublic school of their choice. A school is designated as low-achieving if it ranks in the bottom 15 percent based on combined math and reading scores from the Pennsylvania System of School Assessment (PSSA).

Business Eligibility and Contribution Details

Participation in the OSTC program is open to a range of business entities authorized to operate in Pennsylvania. This includes traditional C-corporations as well as pass-through entities such as S-corporations, partnerships, and limited liability companies (LLCs). To be eligible, a business must be subject to specific state taxes, including the Corporate Net Income Tax, Capital Stock/Foreign Franchise Tax, or the Personal Income Tax that owners of pass-through entities pay.

The financial structure of the program provides two distinct tiers for tax credits based on the length of the commitment. A business making a one-year contribution can receive a tax credit equal to 75% of the donated amount. For example, a $10,000 donation results in a $7,500 state tax credit, making the net cost of the contribution $2,500 for the business.

For businesses willing to make a longer-term commitment, the financial benefit increases. By agreeing to contribute the same amount for two consecutive years, a business can receive a 90% tax credit for each year’s donation. Using the same $10,000 donation example, a two-year commitment yields a $9,000 tax credit annually, reducing the net cost to just $1,000 per year. The maximum contribution eligible for credit per business is $750,000 per taxable year.

Required Information and Forms for Application

Before a business can apply, it must first identify a state-approved Scholarship Organization (SO) to receive its contribution. The Pennsylvania Department of Community and Economic Development (DCED) maintains an official list of these approved nonprofit organizations on its website. Businesses should review this list to select an SO that aligns with their philanthropic goals.

Once an SO is chosen, the business must gather specific information to complete the application. This includes the business’s legal name, its Federal Employer Identification Number (FEIN), and its primary address and contact details. A key piece of information required is the specific Pennsylvania tax type against which the credit will be claimed.

The application itself is a single-page electronic form submitted through the DCED’s online portal, referred to as the Single Application for Assistance. On this form, the business will enter the information it has gathered. It must specify the total amount it intends to contribute and explicitly select whether it is making a one-year or a two-year commitment.

The Application and Donation Process

The completed application is submitted through the DCED’s online portal, as paper applications are not accepted. The timing of the submission is a significant factor in the process, as applications from new participants are accepted starting on July 1st of each year. The DCED processes these applications on a first-come, first-served basis, and all applications received on the same day are processed in a randomized order until the available tax credits are fully allocated.

Following the submission, the business will wait for official communication from the DCED. If the application is approved, the department will issue a formal approval letter to the business. This letter confirms the amount of the approved tax credit.

Upon receiving the approval letter, the business has a 60-day window to make its cash contribution to the Scholarship Organization it selected. After the donation is made, the SO will issue a written acknowledgment to the business. The business must then provide this proof of contribution to the DCED within 90 days of the approval letter’s date.

Claiming the Tax Credit

The final step is to claim the tax credit on the business’s annual Pennsylvania tax return. The written acknowledgment from the Scholarship Organization is the proof of contribution and must be submitted with the tax return to validate the claim.

The specific tax form used to claim the credit depends on the business structure. For C-corporations, the credit is claimed directly on the corporate tax return.

For pass-through entities like S-corporations, partnerships, and LLCs, the tax credit is not claimed at the entity level but is instead passed through to the individual owners, partners, or shareholders. These individuals then claim their proportional share of the credit on their personal Pennsylvania income tax returns, using Form PA-40 and the associated Schedule OC. The entity must provide each owner with a Schedule RK-1 to document their share of the credit.