All 2020 special purpose entities (SPE) K-1s will be delivered by mail in early February to the address you listed on your joinder form. Please check your social security number and address and inform us of any changes as we will submit the Form 1123 for transfer of your PA tax credit from our SPE to your social security number at the end of March. When you receive your K-1 you can certainly proceed with filing your personal tax return assuming you have all your other tax information.
Line 23 page 2 of your personal PA 40 return should show a “payment” of PA taxes equal to the tax credit on your PA RK-1. This “payment” is approximately 90% of the donation you made for scholarships at your school thru our special purpose entities (SPEs). Line 23 is an Other Credit line on your tax return and will pay your PA taxes or if you had withholding or estimate taxes paid will generate a refund. Make sure a number appears on PA line 23 before you sign and file your tax return.
Other Credit OC schedule
Your tax software will most likely complete a OC schedule for the PA tax credit. The “credit description code” is PT or passthru. The “awardee tax ID number” is the federal EIN number on your K-1 for the SPE partnership your in. The credit goes on line 8 Pa education improvement credit. You may have a schedule attached where some or all of your credit goes in line 9 PA opportunity scholarship tax credit. You can use line 9 to match your schedule on your K-1 but PA will accept your tax credit as long as you only claim the total credit on the Pa RK-1 and don’t exceed the amount listed. No rejection has ever occurred for using line 8 or 9 incorrectly.
Upload your information
Technically PA asks you to upload your K-1 packet as a PDF with your return. There is no harm to doing this but we have seen no rejections if you can’t or don’t upload your K-1 packet or mail in with your return.
All PA tax credit returns require a human review which begins in July each year and delays refunds. 2020 was the first year a “send your 1123 tax notice” went out to donors. The 1123 is included in your K-1 packet in case you get this notice you can respond promptly with the correct information. We verify every year in April that all of our 1123 forms have been manually inputted by a PA Department of Revenue employee and this 1123 notice appears to just be a way for PA to avoid paying interest and happened because they were so far behind in human review of personal refund requests. In a normal year July starts refund reviews and refund checks start going out in August and September. You can prioritize your human review by one request in July by email or phone request to the PA Department of Revenue. They have a new software coming for 2021 to allow this communication and refund monitoring. The new software sends mail notices in some cases that just reflects everything is the same as filed and a refund is coming soon. If you get this notice in 2021 and your refund amount is correct no action is needed and your refund should arrive soon.
Your federal K-1 has a 10% donation on it that automatically goes to your schedule A donation line. If you got a refund from PA in 2020 you will see a schedule that shows that refund is not taxable because you never deducted it as a donation or state tax payment. The warning with your K-1 basically says if you need to do something different on your federal tax you and your accountant can make that decision. The IRS allows a full business deduction for the amount paid for some individuals. The IRS allows more state tax deduction for donors who don’t get a full tax credit. If your Pa refund is showing taxable from last year you and your accountant may need to fix that or deduct a companion amount on your Schedule A. We can’t give tax advice but hopefully your tax software or your Accountants’s tax software will automatically enter the 10% donation deduction and automatically report no PA tax refund taxable and for most donors this is the correct federal outcome for your donation.
New $300 donation line on personal taxes
For donors that don’t itemize the donation on your federal K-1 line 13 code D does count towards the $300 per person ($600 joint filing) donation deduction available. You may have to manually enter this amount in your tax software.
Ok this article is confusing and “not your job”. Don’t read it just print it out and put it with your K-1 and provide as extra information to your tax accountant at tax time.