	Background

As of January 2018, there were 22 TCS programs authorized across 18  states (see fig. All TCS programs are state programs; there are no  federal TCS programs. Most Programs Use Income to Determine Student Eligibility and Consider Various Factors When Setting Scholarship Award Amounts

States’ TCS programs often determine student eligibility for scholarships  based on household income and use a range of factors to determine  scholarship award amounts. As shown in figure 2, income  limits varied widely among programs, ranging from just under $32,000 to  about $136,500 per year for students from a four-person household in SY  2017-2018. Scholarship Uses and Amounts

TCS programs have different requirements for how students can use their  scholarships and different methods for calculating scholarship amounts. More than half of the programs (13 of 22) allow students to use their  scholarship money for costs like transportation and books in addition to  tuition, whereas the remaining programs (9 of 22) require scholarships  funds to be used for tuition only. Four programs allow donors to  recommend that their donations fund scholarships for specific students. Average scholarship awards in SY 2016-2017 ranged from $500 to  $5,468 per student among the 16 programs that published such  information or provided it to us. Effect of TCS Donations on Taxes Owed Depends on Factors Such as Tax Credit Percentages and Individual Circumstances

The extent to which TCS program donations affect the amount that  donors owe in state and federal taxes depends on program  characteristics—such as the percentage of the donation that the rules of  the program allow donors to claim as a state tax credit (referred to in this  report as “tax credit percentages”) and limits on donation amounts—along  with donors’ financial circumstances. Tax Credit Percentages

Eleven of the 22 programs allow eligible donors (either individuals,  businesses, or both) to claim 100 percent of their donations as state tax  credits, meaning that, for each dollar donated, the amount of state taxes  owed (i.e., the donor’s tax liability) is reduced by a dollar, up to any  maximum donation limits set by the program. TCS Donations and Federal Taxes for Individual Donors

In addition to reducing their state tax liabilities, some individuals who  make TCS program donations may also be able to reduce their federal  income tax liabilities through the federal tax deduction for charitable  contributions. Appendix I: Comments from the Department of Education

Appendix II: State Tax Credit Scholarship Program Eligibility and Scholarship Award Characteristics

Appendix III: Information About Tax Credit Scholarship Program Tax Provisions

Program name  Programs available for both individual and business donors  Alabama Educational  Scholarship Program  $50,000 or 50% of tax  liability, whichever is lower  (individual)  50% of business tax liability  $1,000 (individual)  75% of business tax liability   $1 million (individual and  business) $350,000 (Individual and  business)  $150 (Individual and  business)  $1,000 (individual)  $100,000 (business)   60% of tax liability (Individual  and business)
Virginia Education  Improvement  Scholarships Tax Credits  Program  Programs available for individual donors only  Arizona Original  Individual Income Tax  Credit Program  $81,250 (individual)  No limit for business donors  $555 (individual)  $552 (individual)

	Percent of donation that may be claimed as a credit

Maximum donation amounts  vary from 50% to 100% of  tax liability  $510,000 or no more than  10% of program credits  2 percent of wages paid  no  In Oklahoma, Pennsylvania, and Rhode Island, the percentage of donations that can be claimed as a  tax credit increases if donors commit to donating for 2 years.
Why GAO Did This Study

TCS programs offer state tax credits to individuals or businesses that donate to scholarship funds for students to attend private elementary and secondary schools. Through these credits, donors may reduce the amount they owe in state taxes by the full or a partial amount of their donation, depending on each program's rules. Designing a TCS program requires that many decisions be made, such as which students will be eligible to receive scholarships and the effect donations will have on donors' state taxes. GAO was asked to review key characteristics of TCS programs.
This report examines (1) state TCS programs' policies regarding student eligibility and scholarship awards, and (2) how donating to a TCS program could affect the amount of state and federal taxes owed by donors.
For both objectives, GAO reviewed publicly-available documents about student eligibility and tax provisions for all 22 programs authorized as of January 2018 and verified the accuracy of the information with state program officials. GAO did not conduct an independent legal review of state laws and regulations. GAO also interviewed federal officials and reviewed relevant federal guidance and policy documents.

What GAO Found

In 2018, there were 22 tax credit scholarship (TCS) programs authorized across 18 states, which provide state tax credits for individual and business donations that fund scholarships for students to attend elementary and secondary private schools (see figure).
To determine the eligibility of students for these scholarships, most TCS programs use household income and have various approaches to determine scholarship award amounts. Income limits vary widely among programs, ranging from approximately $32,000 to $136,500 per year for students from a four-person household in school year 2017-2018. Programs have different requirements for how students can use their scholarships and different methods for calculating scholarship amounts. More than half of the programs (13 of 22) allow students to use their scholarship money for costs like transportation and books in addition to tuition, whereas the remaining programs (9 of 22) require scholarships funds to be used for tuition only. Average scholarship awards in school year 2016-2017 ranged from $500 to $5,468 per student among the 16 programs that published or provided GAO with such information.
The effect of TCS donations on donors' tax liability depends on program characteristics and donors' financial circumstances. Specifically, half of the 22 programs allow eligible donors to claim 100 percent of their donations as state tax credits, meaning that for each dollar donated, state taxes owed are reduced by a dollar, up to any maximum set by the state. The remaining 11 programs allow donors to claim from 50 to 85 percent of their donations as state tax credits. Programs often specify a maximum tax credit that may be claimed each year by a donor, by all donors combined, or both. Individual donors may also reduce their federal tax liabilities through the federal deduction for charitable contributions, depending on their financial circumstances and applicable tax provisions.