Frequently Asked Questions

Tuition Donation Credit Program

1. What changes did Act 377 of the 2017 Regular Session make to the tax treatment of donations to School Tuition Organizations (STOs)?

   Act 377 made three main changes to the tax treatment of donations to STOs. The three main changes are:

   1. Changed the nature of the tax benefit from a rebate to a nonrefundable income tax credit with a 3 year carryforward period;
   2. Requires that the recipient of the credit must be a taxpayer who is required to file a Louisiana income tax return; and
   3. Stipulates that the credit is claimed and allowed, the taxpayer can receive no other Louisiana tax benefit for the same donation.

2. To whom do the changes of Act 377 apply?

   These changes to the tax treatment of donations to school tuition organizations are effective for donations made on or after January 1, 2018.

3. What does the characterization of the benefit as a nonrefundable income tax credit mean?

   A nonrefundable credit can only be used to offset income tax liability. If the amount of the credit exceeds the taxpayer’s liability in the year earned, the unused portion of the credit may be carried forward and used against subsequent income tax liabilities for an additional 3 years. Because the credit offsets income tax only, the credit may only be claimed by an individual, corporation, and fiduciary income taxpayers, and the credit cannot be used to offset other taxes such as corporation franchise tax or sales tax.

4. When is the credit earned and when may it be claimed on a tax return?

   The credit is earned when the donation is made by the taxpayer; however, the credit cannot be claimed on a tax return until Louisiana Department of Education issues a receipt to the taxpayer through the school tuition organization. The taxpayer must have the receipt on or before the due date of the return in order to claim the credit for the preceding tax year. When claiming the credit on the taxpayer’s Louisiana income tax return, the taxpayer must attach Form R-10604 Receipt for Donations to School Tuition Organization Tax Credit.

5. Who is a taxpayer required to file a Louisiana income tax return?

   -Louisiana resident individuals who are required to file a federal income tax return are required to file a Louisiana income tax return.

   -Nonresident individuals who earn net income from property located in La., from services rendered in La., from business transacted in La., or from sources within La. are required to file a Louisiana income tax return.

   -Corporations subject to taxation pursuant to Title 47, Subtitle II, Chapter 1 are required to file a Louisiana corporation income tax return.

   -Fiduciaries, such as trusts and estates, subject to taxation pursuant to LA R.S. 47:300.1, et seq. who have net income of $2,500 or more, has gross income of $6,000 or more, regardless of the amount of net income or who have beneficiary of the fiduciary who is a nonresident of Louisiana are required to file a Louisiana fiduciary income tax return.

6. What is the add back to prevent a double benefit on the donation and how does it work?

   LA R.S. 47:6301(A)(1)(a) provides that a “taxpayer shall not receive any other state tax credit, exemption, exclusion, deduction or any other tax benefit for when the taxpayer has received” the credit for donations to school tuition organizations. For Louisiana income tax purposes, the starting point for corporation and fiduciary income tax returns is federal taxable income and the starting point for individual income tax is federal adjusted gross income. The prohibition on double benefits requires that a taxpayer add back certain deductions taken at the federal level that are otherwise deductible for state income tax purposes. If a taxpayer does not take the corresponding deduction related to the donation, no add back is required.

7. How does an individual income taxpayer add back in order to avoid a double benefit on the donation to a school tuition organization?

   For federal income tax purposes, individuals may deduct charitable contributions as an itemized deduction on Federal Schedule A to arrive at federal taxable income in accordance with Internal Revenue Code Section 170.

   If the taxpayer claims the credit for tax years 2018 through 2021, the individual shall make an addition on Schedule E of the LA Form IT-540 or Non-Resident & Part-Year Resident Worksheet of the LA Form IT-540B if the following two conditions apply:

   1. The individual’s federal itemized deductions allowed by Internal Revenue Code Section 170 included the donation made by the individual to the school tuition organization as a charitable contribution on Schedule A attached to Federal Form 1040; and
   2. The individual claimed the excess federal itemized personal deduction allowed by LA R.S. 47:293(3) for the tax year in which the donation was made by the individual to the school tuition organization.

   The addition required on Schedule E of the LA Form IT-540 or LA Form IT-540B shall be the difference between the individual’s excess federal itemized personal deduction and the recalculated excess federal itemized personal deduction after removing the donation from the individual’s federal itemized personal deduction for the tax year in which the donation was made and receipt was issued by LDE. The addition is limited to the amount of the credit claimed.

   Beginning with tax year 2022, the add back is no longer needed for individuals because Act 395 of the 2021 Regular Legislative Session limited excess federal itemized deductions to medical and dental expenses. This change to excess federal itemized deductions eliminated the double state benefit for a donation to a school tuition organization effective December 31, 2021. (Answer revised 10/7/22)

8. How does a corporation income taxpayer add back in order to avoid a double benefit on the donation to a school tuition organization?

   For federal tax purposes, corporations may generally deduct charitable contributions to arrive at federal taxable income in accordance with Internal Revenue Code Section 170.

   In the year the corporation claims the credit, the corporation shall make an addition on Schedule F of the LA Form CIFT-620 if the following condition applies:

   1. The corporation’s federal deductions for charitable contributions allowed by Internal Revenue Code Section 170 included a deduction for the donation made by the corporation to the school tuition organization.

   The addition required to be made on Schedule F of the LA Form CIFT-620 shall be the amount of the charitable contribution claimed on the corporation’s federal return. The addition is limited to the amount of the credit claimed on the return.

9. How does a fiduciary income taxpayer add back in order to avoid a double benefit on the donation to a school tuition organization?

   For federal tax purposes, fiduciaries such as estates and trusts may generally deduct charitable contributions to arrive at federal taxable income in accordance with Internal Revenue Code Section 170.

   In the year the fiduciary claims the credit, the fiduciary shall make an addition on LA Form IT-541 if the following condition applies:

   1. The fiduciary’s federal deductions for charitable contributions allowed by Internal Revenue Code Section 170 included a deduction for the donation made by the fiduciary to the school tuition organization.

   The addition required to be made on LA Form IT-541 shall be the amount of the charitable contribution claimed on the fiduciary’s federal return. The addition is limited to the amount of the credit claimed on the return.

10. How does the Treasury Regulations Impact Donations to School Tuition Organizations?

    In August of 2018, the United States Department of Treasury and the Internal Revenue Service issued IR-2018-172 and proposed regulations titled “Contributions in Exchange for State or Local Tax Credits.” The final regulations, which were issued on June 11, 2019, and apply to donations made after August 27, 2018, are effective August 12, 2019. The regulations are designed to clarify the relationship between state and local tax credits and the federal tax rules for charitable contributions. Under the regulations, a taxpayer who makes payments or transfers property to an entity eligible to receive tax deductible contributions must reduce their charitable deduction by the amount of any state or local tax credit the taxpayer receives or expects to receive.

    The regulations may affect taxpayers claiming the nonrefundable income tax credit for donations to Louisiana’s school tuition organizations. While the regulations do not affect the amount of the nonrefundable income tax credit, the regulations limit the amount of the federal deduction for charitable contributions by the amount of the nonrefundable income tax credit received or expected to be received by claiming the credit on a Louisiana income tax return. For individual income taxpayers, the limitation on the federal deduction for charitable contributions may decrease the Louisiana deduction for the excess federal itemized personal deductions and increase the Louisiana deduction for federal income tax liability. For corporations and fiduciary income taxpayers, the limitation on the federal deduction for charitable contributions may increase the Louisiana deduction for federal income tax paid.

    Notwithstanding any other guidance contained in this bulletin, taxpayers shall adhere to limitations and other provisions contained in the regulations when calculating the nonrefundable income tax credit as authorized by LA R.S. 47:6301 for donations to school tuition organizations made on or after August 28, 2018. For donations to school tuition organizations made from January 1, 2018, to August 27, 2018, the currently do not apply. However, the regulations, including the applicability date, may be changed at a later date.

11. Is the amount of the nonrefundable credit taxable as gross income?

    Because the nonrefundable credit reduces income tax liability but cannot generate a refund to the taxpayer, the credit is not considered gross income for purposes of Internal Revenue Code Section 61. In other words, a taxpayer that claims a nonrefundable credit for donations to school tuition organizations is not required to include the credit in gross income for federal and state tax purposes.

    However, rebates issued for donations to school tuition organizations prior to the enactment of Act 377 are considered a state subsidy to the taxpayer and are taxable as income for federal and state tax purposes.

12. How does the donation to a school tuition organization affect a taxpayer’s declaration of estimated tax?

    Taxpayers are generally required to pay quarterly declarations of estimated tax if the taxpayer’s income tax liability is expected to exceed their credits, including withholdings, allowable against income tax liability. Taxpayers who donate to a school tuition organization are allowed to factor in the presumptive credit related to such donation when calculation the declaration of estimated tax. The nonrefundable income tax credit a taxpayer presumes they will receive for the donation to a school tuition organization will reduce the declaration payments due quarterly.

13. What does the donor tax credit process look like?

    Steps		Description
    1	Initial Donation	A donor makes an initial donation to a School Tuition Organization (STO) with any applicable stipulations.
    2	Verification of Donation	The Louisiana Department of Education (“LDOE”) certifies the donation by verifying the amount of each taxpayer’s donation with the STO.
    3	Issue Donor Receipts	The LDOE issues receipts to the STOs for the amount of the donation that will be used on student scholarships. The STO will then distribute these receipts to their donors.
    4	Donor Claims Credit on Return	The taxpayer attaches this receipt when filing his income tax return. The taxpayer must have the receipt on or before the due date of the return in order to claim the credit for the preceding tax year.

14. Where can potential donors view more information regarding the Tuition Donation Credit Program?

    Revenue Information Bulletin No. 18-024, Changes to Tax Treatment of Donations Made to School Tuition Organizations, was issued by LDR and discusses the tax credit. Department of Education has a webpage for the Tuition Donation Credit Program, which includes some frequency asked questions.