California College Access Tax Credit Reminders

California's College Access Tax Credit Program started in 2014. For individuals, it allows a large credit for donations made to this fund. Before claiming any credit though, the donor must first apply for the credit with the State Treasurer. This is because a fixed amount of credits is available so people claim it on a first-come-first-serve basis.  In the first few years, little was claimed relative to the amount allocated.

IMPORTANT - If an individual or corporation wants to get the credit for 2017, the application is due to the State Treasurer by 5 pm on Thursday November 30, 2017 and payment must be made by December 31, 2017.

There was a legislative change this year that extends the credit through 2022.

AB 490 (Chapter 527; 10/6/17) College Access Tax Credit – Extends the credit for five years, through 2022. Also, starting in 2017, “the aggregate amount of credit that may be allocated and certified pursuant to this section, Section 12207, and Section 23687 shall be an amount equal to five hundred million dollars ($500,000,000)” (rather than $500 million per year). FTB analysis - AB 490.

The credit amount for 2017 (and beyond) is 50%. As of 4/3/17, there is $500 million available to be claimed for 2017. In the first three years, despite $500 million allocated for each year, only the following amounts were claimed:

            2014    $3,751,393

            2015    $8,231,253

            2016    $5,369,369

The application form and additional information is provided at the California Treasurer’s website at http://treasurer.ca.gov/cefa/catc/.

On the federal return, individuals claim the donation amount as an itemized deduction. For California, only a 50% credit is claimed (no deduction). The percentage amounts differ for corporations. See above website.

Per the Treasurer’s CEFA information, as described in the Assembly Floor Analysis to AB 490 (9/6/17):

“According to CEFA, nearly $3.8 million in tax credits for 355 taxpayers (from about $6.2 million in contributions) were allocated and certified for tax year 2014. As such, tax year 2015 began with approximately $996 million in available credits, with nearly $8.2 million in tax credits for 328 taxpayers (from about $13.8 million in contributions) allocated and certified over the tax year. Tax year 2016 began with approximately $1.4 billion in available tax credits, with nearly $5.4 million in tax credits for 213 taxpayers (from about $9.9 million in contributions) allocated and certified over the tax year.”

For 2014 that works out to a credit of about $10K per person who donated. I assume this really means a good number of smaller contributions and a few very large ones.

Observations on the credit:

• It violates the neutrality principle in that it can affect a donor's decision-making to donate to this fund because the tax savings are much larger than for other donations.
• It is underutilized relative to the dollars available. Why? Too complex due to the application requirement? Too few know about it? 

What do you think?