Members of a Special Purpose Entity can receive an EITC tax credit to apply against their Pennsylvania state income tax equal to 90% of the contribution to the Special Purpose Entity. In addition, the contribution to the Special Purpose Entity qualifies for a charitable income tax deduction on the member’s federal income tax return.
For example, if a member contributes $5,000 to a Special Purpose Entity, the member will get a $4,500 tax credit and a $1,400 reduction in federal income tax liability (assuming 28% federal AMT tax rate), which is a $5,900 tax reduction on a $5,000 investment or an 18% return on the $5,000 investment.
| Without Contribution to SPE | With Contribution to SPE |
| Gross Income $200,000 | Gross Income $200,000 |
| Charitable Contribution $0 | Charitable Contribution ($5,000) |
| Taxable Income $200,000 | Taxable Income $195,000 |
| Federal Income Tax (28%) $56,000 | Federal Income Tax (28%) $54,600 |
| Pennsylvania Income Tax (3%) $6,000 | Pennsylvania Income Tax (3%) $6,000 |
| EITC Credit $0 | EITC Credit ($4,500) |
| Net Pennsylvania Income Tax $6,000 | Net Pennsylvania Income Tax $1,500 |
| Total Tax $62,000 | Total Tax $56,100 |
| Tax Savings $5,900 |
