The California College Access Tax Credit
For tax years beginning on or after January 1, 2014, and through 2022, a California credit is available for individuals and business entities, and for tax years 2017 through 2022 for insurance company entities also. The credit is allowed for cash contributions made to the College Access Tax Credit Fund (“Fund”), which is a specially created fund that will be used to provide additional Cal Grants to eligible students.
There is no explicit limit on the amount a taxpayer may contribute, but the contributions must be made in cash. “Cash” for this purpose means cashier’s check, money order, or Electronic Fund Transfer. For business entities only, checks written on the business entity’s business account will be considered as cash. Electronic Fund Transfer only includes wire transfer and Automated Clearing House.
Apply for the Credit
For 2024 the yearly maximum amount of credits that can be allocated and certified is about $489 million. The California Educational Facilities Authority’s (CEFA) deadline for applications for credits for 2024 is 5:00 p.m. January 2, 2025. There is an on-line application or a PDF application can be downloaded at: https://www.treasurer.ca.gov/cefa/catc/index.asp. The completed PDF application can be faxed to 916-653-2179 or mailed to CEFA, 915 Capitol Mall, Room 435, Sacramento, CA 95814, Attention: Operations Manager. Taxpayers who receive a certificate from the California Educational Facilities Authority (CEFA) may claim the credit on their income or franchise tax returns using credit code 235. The awardable credits were and are:
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For the 2014 taxable year, 60% of the amount contributed, as allocated and certified by the California Educational Facilities Authority (“CEFA”).
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For the 2015 taxable year, 55% of the amount contributed, as allocated and certified by CEFA.
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For the 2016 through 2027 taxable years, 50% of the amount contributed, as allocated and certified by CEFA.
Carryovers
Any unused credit is carried forward for up to six years.
CA AMT
The credit is allowed to be used against the California AMT.
Charitable Deduction
No deduction will be allowed on the state tax return for amounts taken into account in calculating the credit. However, the taxpayer is entitled to take a federal charitable contribution deduction if itemizing on their federal return. But the deductible amount is net of the College Access Tax Credit.
The IRS issued final regulations in June 2019 that are aimed at overcoming the credit programs some states developed that were meant to be work-arounds to the TCJA itemized deduction limitation of $10,000 that applies to state and local taxes. These regulations also apply to contributions made after August 27, 2018 to pre-existing quid pro quo programs when the credit claimed on the state return is greater than 15% of the contribution. The California College Access Tax Credit Fund is such a program.
Example: Alyssia makes a payment of $1,000 to the California College Access Fund on October 1, 2024. In exchange for the payment, she receives or expects to receive a state tax credit of 50% of the contribution. Under the regulations, Alyssia’s federal charitable contribution deduction is reduced by $500 (50% x $1,000). Thus, Alyssia’s federal charitable contribution deduction for the $1,000 payment is $500.
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