Critics of state tax credits say the IRS workaround rules were a common-sense effort to address donors double-dipping on tax credits — essentially collecting state and federal tax benefits on the same contributions.
“They were stacking up state and federal tax cuts larger than what they ever donated,” said Carl Davis, research director, at the Institute on Taxation and Economic Policy. “It really was a tax shelter.”
The 2019 rule change weeded out opportunists using the programs as tax shelters, he said. Committed donors can still get as much as 100% of their contributions back through state tax deductions, but those deductions put tax credit scholarships in “direct competition” with funding for public schools, Davis said. Read more