The purpose of the cover letter is to say hello here is your K-1 and if you have any problems this is who you can call to get something changed. You can toss the cover letter as it has nothing to do with your tax preparation.
The federal K-1
The only important thing on the federal K-1 is the EIN number Part 1 Box A. This EIN number allows you to create a federal K-1 form in your tax software or your accountants tax software and this is important so you can add a state K-1 form. This EIN number is also the awardee tax ID number you will need for your PA tax return. If you input the K-1 Box 13 has a 10% donation deduction that will go automatically via tax software to your Schedule A and add to your donation deductions. If you paid your donation with a business check leave your K-1 blank and use the check you wrote thru your business as the federal tax deduction. If you did not get to use the full tax credit on your PA tax return you can change this donation deduction to the correct donation deduction on Schedule A. The K-1 box 13 is the "suggested" donation deduction but you and your accountant need to decide the correct federal donation deduction. You can enter your donation deduction directly on Schedule A and ignore the number on K-1 line 13.
The PA K-1
This is the important page of your K-1 package. Line 9 other credit is the 90% tax credit you earned for making your EITC donation deduction to your school for scholarships thru our charity. This is a payment of your PA taxes as long as you enter the number on your PA tax return. The amount on Line 9 other credit goes on PA form OC and then goes to a payment line on PA 40 which is line 23 and acts just like you wrote a check to PA for taxes. When you look at your final tax return you need to see a payment on line 23 PA 40 page 2 or something was done wrong. If your accountant does your tax return look at PA 40 page 2 line 23 other credit and make sure there is a number there and that means the tax preparation included your tax credit and you are getting the benefit of your donation.
Some software won't let you create a PA K-1 without a federal K-1 being created so if you are trying to enter the tax credit directly on your tax software and its not working then try that solution.
The rest of the SPE K-1 tax package
The state always delays your refund and does a human check before they send out your refund. We make sure that the PA tax credit was transferred to your social security number and file the 1123 directly with a human at the PA Department of Revenue who manually enters the Form 1123. Regardless the human who does your manual check may ask you to provide the 1123 again. The unsigned 1123 and award letter and thank letter and 1123 transfer form is in your SPE K-1 package in case you get a request for it. We have tried everything we can to avoid that happening to you as a donor but in a small percentage of the donors get the request. If you ask us for help we can resent this information to you again but we can not respond directly for you because of privacy and the fact that the state only wants a response from you or your tax preparer.
This blog post attempts to simplify the SPE EITC tax package so you can use it to quickly and effectively for your tax credit benefit earned from your generous donation. Please share with your accountant who may not have dealt with EITC SPE K-1's in the past.
Do I need to send the K-1 packet to Pennsylvania?
You can electronically upload the packet with your efiled return as extra proof. Some accountants want to do this. You can mail it with your tax return if you "paper file" your tax return. Because we have already filed the 1123 form and have the credit in your account and on the state master list there is no requirement for you to send the state anything in the K-1 packet as long as you have completed the PA OC tax form and listed the "payment" on the other credit line 23 of your PA page 2 tax return.
What tax software works for the SPE K-1 tax package?
The only software we know does not work is the Pennsylvania direct file free software. It does not include PA tax credits as an option so you can't use this software to file your tax return. All the other tax software allows you to include your SPE K-1 information. Some of the tax software does not allow you to efile but you can still mail your PA 40 to Pennsylvania in that situation. The most popular do it yourself tax software is Turbotax. Here is a video we prepared using Turbotax Online to enter a PA SPE K-1 package if you need more of a demonstration of how to enter an SPE K-1 into your taxes.
MyPath PA New Tax Software
We hope Pennsylvania will improve the process for taking a PA EITC/OSTC tax credit on an individual tax return and we will update our website as the new PA tax software gets implemented and hopefully it will automate and improve the processing of PA EITC tax credits. This software called MyPath was added in 2020 and allows you direct online communication with PA about your tax filing and your PA tax refund. Once we have some user information about this new system we will try to update EITC donors if there is a better more efficient way using MyPath to get your PA refund processed faster.