PA EITC and OSTC: How Pennsylvania's Scholarship Tax Credits Work for Donors

Pennsylvania runs two scholarship tax credits for businesses: the Educational Improvement Tax Credit (EITC) and the Opportunity Scholarship Tax Credit (OSTC). Both are run by the Department of Community and Economic Development (DCED). Both return most of a business's gift as a credit against Pennsylvania taxes. And both let individuals take part through special purpose entities.

Pennsylvania donors also need to know where the state stands on the new federal scholarship tax credit. As of October 2026, it hasn't opted in. That affects which organizations can take federal credit gifts, but it doesn't stop Pennsylvanians from claiming the federal credit.

This is general information, not tax advice. Ask your tax professional about your situation.

How PA EITC and OSTC work

A business applies to DCED for credits, gets approved, gives to an approved organization, and then uses the credit against its Pennsylvania tax.

A "low-achieving school" is a public school in the bottom 15% of its category on combined math and reading state test scores. For 2025-26, OSTC awards are capped at $8,500, or $15,000 for students in special education, per DCED.

PA OSTC: the Opportunity Scholarship Tax Credit

The OSTC is Pennsylvania's second, more targeted scholarship credit. It uses the same business credit rules as the EITC, but the scholarships it funds go only to students zoned for struggling public schools. Here is how it works, per DCED as of October 2026:

• Which students qualify. A student must live within the attendance boundaries of a low-achieving school, as determined by the Pennsylvania Department of Education. That means a public elementary or secondary school ranking in the bottom 15% of its designation on combined math and reading PSSA scores. The household income limit is $122,322 plus $21,531 for each dependent.
• Where the scholarship can be used. At a nonpublic school, or at a public school outside the student's home district.
• Award size. For 2025-26, up to $8,500 per student, or $15,000 for a student in special education.
• The business credit. 75% of the gift, or 90% if the business commits to give the same amount for two consecutive tax years, up to $750,000 per taxable year. This is separate from the EITC maximum, so a business can apply for both.
• Program size. DCED lists total OSTC program funding of $50 million. Approvals are first come, first served by day until credits run out.
• Individuals take part through SPEs. As with the EITC, an individual usually joins a special purpose entity that makes the OSTC gift, then claims a share of the credit against Pennsylvania personal income tax.
• More reporting. Starting with 2025-26, OSTC scholarship organizations must report each award's amount, whether the student has a disability, grade band, district of residence and the school attended.

EITC or OSTC: which should you choose?

If you want your gift to reach students in the lowest-performing school zones, choose OSTC. If you want broader options, including pre-K scholarships or public school innovation programs, choose EITC. DCED keeps separate lists of approved organizations for each program, so check that your chosen organization is on the right one.

Who can claim it: businesses and individuals

Businesses authorized to do business in Pennsylvania can apply if they pay one of these taxes: personal income tax, corporate net income tax, capital stock/foreign franchise tax, bank shares tax, title insurance and trust company shares tax, insurance premiums tax, mutual thrift tax, malt beverage tax or surplus lines tax. S corporations, partnerships and LLCs can apply on the same day as C corporations.

Individuals join through a special purpose entity (SPE). DCED's guidelines define an SPE as a pass-through entity created to make EITC or OSTC contributions, whose members are owners or employees of other businesses. You join the SPE, commit to give, and claim your share of the 90% credit against your Pennsylvania personal income tax. Many scholarship organizations and schools sponsor SPEs and handle the paperwork.

Application windows and deadlines

DCED processes applications first come, first served by day submitted, with same-day applications in random order, until credits run out:

• May 15 to June 30: businesses renewing a two-year commitment, and businesses in the middle of one.
• July 1: everyone else, including first-time applicants.

After approval, you must give within 60 days of DCED's notification letter and send proof within 90 days. Credits apply to the tax year of the gift. Unused credits can't be carried forward or back, refunded or transferred. The one exception: an approved pass-through entity can elect to pass unused credits to its owners for the next tax year.

Want to compare Pennsylvania's business credits with Arizona's, Florida's and Georgia's? See our guide to business tax credit scholarships.

How Pennsylvania's credits stack with the federal $1,700 credit

The federal credit under Section 25F, starting January 1, 2027, returns up to $1,700 per individual taxpayer ($3,400 for a married couple who each give) for cash gifts to an SGO on an opted-in state's list. Our Education Freedom Tax Credit guide covers the rules.

Pennsylvania status, October 2026: Pennsylvania was not on the IRS list of 30 states that made an advance election (current as of September 14, 2026). News coverage through September reported that Gov. Josh Shapiro had not decided. Under Treasury's proposed rules, a state must file its advance election by January 1, 2027 to take part in 2027. Track it on our states that opted in page.

What this means:

1. Pennsylvania organizations can't take federal credit gifts for 2027 unless the state opts in and lists them.
2. You can still claim the federal credit. You can give to an SGO on the IRS list in any opted-in state, wherever you live.
3. EITC and OSTC don't reduce the federal credit. The federal credit is reduced only by state credits for qualified contributions, which are cash gifts an individual makes directly to a listed SGO. EITC and OSTC gifts are made by businesses, including SPEs. Treasury's proposed rules say a gift by a partnership or S corporation is not a qualified contribution of its owners. So SPE giving and the federal credit stay separate, even if Pennsylvania opts in later.

Worked example: a married couple in Pittsburgh

Spouse A needs at least $4,500 of Pennsylvania tax liability for the SPE credit to be fully usable. At Pennsylvania's flat 3.07% rate, that takes roughly $147,000 of taxable income. The federal credits are claimed on the 2027 return filed in 2028, and unused federal credit carries forward up to five years. Why a credit beats a deduction is explained in tax credit vs. deduction.

How to give, step by step

1. For the state credit: if you own a business, apply in DCED's window. If you're an individual, ask a scholarship organization or school about joining its SPE before the application season.
2. For the federal credit: pledge on Edulist's donor page and we'll remind you when giving opens on January 1, 2027. You give directly to the SGO; Edulist never handles donations.
3. Pick organizations carefully. Use DCED's lists of approved organizations for EITC and OSTC, and the IRS SGO list for the federal credit. Approved organizations include BLOCS, Children's Scholarship Fund Philadelphia and Pittsburgh Jewish Educational Improvement Foundation. Our checklist for choosing a scholarship fund helps you compare.
4. Keep records. Keep DCED's approval letter and your contribution proof for the state credit. For the federal credit, keep the SGO's acknowledgment with your unique donor number for Form 8525.

Families can see how Pennsylvania scholarships work on our Pennsylvania scholarships page.