Starting Tuesday, Illinois taxpayers have a controversial new way to lower their state income tax bill — they can donate to approved private-school scholarship funds. Observers believe the new credit will be so popular that all $75 million in credits available this year could be claimed in just days.
The new credits allow Illinois individual and business taxpayers to shave 75 cents off their tax bill for every dollar they donate to the scholarship funds. That means a taxpayer could completely wipe out a $1,000 state income tax bill by donating $1,334 to the scholarship funds.
Critics have called the credits a backdoor school voucher program that will hurt public education and the state’s bottom line by allowing individuals and businesses to divert money they’d otherwise owe in taxes to scholarships for private and parochial schools.
The program, dubbed Invest in Kids, was added as a compromise amendment to the final version of the state’s historic school funding overhaul in August.
“Many of my clients are very interested in it,” said Neil Kawashima, a tax attorney with McDermott, Will & Emery who counsels wealthy individuals and families. “Obviously [there’s] the philanthropic benefit of helping low-income children obtain scholarships for tuition to private schools and parochial schools, but also there are significant tax benefits as well.”
He expects all the tax credits the state has set aside could be claimed within “days” because there are annual online stampedes for the credits in other states with similar plans.
Illinois taxpayers are limited to $1 million in credits per year. The program is guaranteed for five years, though supporters believe it is likely to be extended because it would be politically unpalatable to see thousands of children enrolled in private schools lose their scholarships.
If the credits are all claimed, that would mean at least $100 million in the state for scholarships, potentially benefiting between 6,000 and 15,000 children. The program is seen as a boon to private schools; Cardinal Blase Cupich personally lobbied for it. Donors are allowed to specify a school or schools they want their donation to benefit, but not an individual student.
Illinois became the 18th state to operate a tax credit scholarship program. Nationally, more children now attend private schools through tax scholarship programs than through voucher programs, which are seen as more politically toxic.
“I think it's going to help a lot of children and families find the right school for them,” said Josh Hale, President and CEO of Big Shoulders Fund, a 35-year-old scholarship fund benefitting Catholic schools in Chicago’s neediest neighborhoods.
Big Shoulders Fund is one of five nonprofits the Illinois Department of Revenue has approved as official “scholarship granting organizations” taxpayers can donate to.
Hale said Big Shoulders currently helps about 4,000 to 6,000 kids a year attend Catholic schools.
“And we get applications for probably close to 10,000,” he said. “There’s a lot of families out there looking for the option to send their children to the school of their choice.”
Hale said Big Shoulders Fund currently administers 60 different private scholarship funds, each with different requirements. He doesn’t anticipate that administering a state-sponsored fund — which would prohibit selecting students based on anything other than income — will be a challenge.
To qualify for a scholarship, families can make up to three times the poverty level — $73,800 for a family of four. Through April, priority will be given to families who make less than 185 percent of the poverty level. Families can start applying for full and partial scholarships Jan. 24.
Taxpayers interested in taking the credit must first open an online account with the Illinois Department of Revenue.
The new tax credit is one of just 10 credits offered to individual taxpayers in Illinois, and it’s by far the most generous. For instance, taxpayers can claim a credit for qualified educational expenses, but that’s capped at $500 per family per year. A credit for property taxes paid on a homeowner’s principal residence is capped at 5 percent.
The only other Illinois tax credit that comes close to the new Invest In Kids credit is one that allows taxpayers to take 50 cents off their tax bill for every dollar they donate to an approved affordable housing project.
Linda Lutton covers education for WBEZ. Follow her on Twitter at @WBEZeducation.