Income Tax Credit Available for Education Donations

Montanans will once again have the opportunity to receive dollar-for-dollar credits on their state income taxes for donations made to public school districts and private school scholarship organizations.

Lawmakers during the 2023 legislative session adopted changes to two statewide programs, the Innovative Educational Program Tax Credit and the Student Scholarship Organization Tax Credit, which allow tax dollars to go towards learning initiatives in public school districts, as well as scholarships to private schools. Taxpayers have until the middle of January to submit donations to qualified schools and programs. Public school administrators say the donations will fund work-based learning, personalized education and other specialized programs not covered by annual budgets.

Innovative Educational Program Tax Credit

Established in 2015, the Innovative Educational Program Tax Credit is a program available to individuals, estates, trusts, corporations, partnerships and LLCs that donate to Montana’s public school districts. Taxpayers can donate up to $200,000 to the program (and can separately donate up to $200,000 to the Student Scholarship Organization Tax Credit). Married taxpayers filing jointly may take a tax credit of up to $400,000 per program. Taxpayers may not claim the credits and deduct the same amount from their taxes as a charitable contribution.

The statewide cap on donations is $5 million.

Donations made through the program can be used to fund “innovative educational programs,” what the state describes as “an advanced academic program that enhances the curriculum or academic program of an eligible public school” and that is not part of the school’s everyday curriculum. Permitted uses include transformational learning, advanced opportunity courses, programs and services for children with disabilities, work-based learning and postsecondary education partnerships, technology enhancements and capital improvements or equipment necessary to support innovative programs.

“It’s a way for schools to receive funding for their innovative programs where they don’t have to take it from the general fund or go out and ask taxpayers for additional funding to implement these programs,” Kalispell Public Schools Interim Superintendent Randy Cline said.  

Both the Kalispell and Whitefish school districts have put out calls to families encouraging them to participate in the program.

Lawmakers in recent years have honed in on transformational learning and individualized education, encouraging school districts to craft and implement innovative initiatives in the classroom. The Montana Legislature in 2023 passed bills bolstering career and technical education and advanced opportunity programs.

The Kalispell school district has led the state in transformational education as KPS administrators have brought internship programs, hands-on community activities and individualized learning opportunities into the district. Cline said the district will use the donations to fund existing specialized math programs and personalized competency-based education, as well as new initiatives.

The Legislature in 2023 amended the tax credit program to account for inequalities borne out of formulas used in years past. Lawmakers in 2021 set the per-donor credit limit at $200,000 and the statewide donation cap at $1 million. The state in January 2022 hit the $1 million cap within five minutes of the donation portal opening, with nearly $700,000 — more than half of the donation money — going to the Big Sky School District. The statewide donation cap in January 2023 was reached in two days, with nearly $900,000 going to Big Sky.

In attempts to limit the vast majority of donations going to one school district, lawmakers last year raised the statewide donation cap to $5 million and set caps on the amount individual school districts can collect. 

School districts can receive donations up to $50,000, 15% of the district’s maximum general fund budget, or 20% of the total credit collected in Montana, whichever comes first.

While the state hopes the reconfigured formula will level the playing field, Robert Finstead, chief information officer for the Montana Department of Revenue, at a Tuesday meeting of the Legislative Education Interim Committee told lawmakers, “If it’s like other years, it’ll be pretty busy in that moment.”

Taxpayers must donate directly to local school districts, which will then submit the donations to the state for the inclusion in the tax credit program. If donations are rejected by the state for administrative reasons or because the donation cap has been met, they will be returned to the taxpayer. School districts are encouraging taxpayers to make donations as early as possible before Jan. 17, when the online portal opens for districts to submit donations.

Donations to the Whitefish School District must be received by 4:30 p.m. on Jan. 16. Donations to the Kalispell Public Schools must be received by Jan. 15.

Student Scholarship Organization Tax Credit

Taxpayers can also receive dollar-for-dollar tax credits for donations made to qualified organizations that provide scholarships to students to attend private schools.

There are 14 student scholarship organizations taxpayers can donate to, including Kalispell’s St. Matthew’s Catholic School and Kalispell Montessori.

The same guidelines apply for the Student Scholarship Organization Tax Credit and the Innovative Educational Program Tax Credit. Taxpayers can donate up to $200,000 to the Student Scholarship Organization, or $400,000 for married couples filing jointly.

The statewide cap on donations for the Student Scholarship Organization Tax Credit is also $5 million.

More information on both programs can be found through the Montana Department of Revenue’s 2024 tax credit guide. The list of eligible pubic school district and student scholarship organizations can be found on the online portal.