FAQs for Taxpayers
What is the benefit of contributing to the ALEF Fund?
First, you are supporting Jewish Education. Second, since you receive a State of Georgia Income Tax Credit equal to the amount contributed, there is virtually no cost to you. Georgia taxpayers can redirect taxes up to the following amounts:
- Married $2,500
- Single $1,000
- Married filing separately $1,250
- Members of single or multi-member LLC’s, Partners in Partnerships, and Shareholders in S-corporations $10,000
- Trusts and Estates can offset up to 75% of their State income tax
- Corporations can offset up to 75% of their State income tax
Please note the following with respect to the $10,000 limit:
If the individual taxpayer is a member, partner, or shareholder in more than one pass through entity, the total credit allowed cannot exceed $10,000; The individual taxpayer decides which pass through entities to include when computing Georgia income for purposes of the qualified education expense credit. You can include those with income and exclude those with losses. All Georgia income, loss, and expense from the taxpayer selected pass-through entities will be combined to determine Georgia income for purposes of the qualified education expense credit. Such combined Georgia income shall be multiplied by the Georgia tax rate (6% for 2018, 5.75% for 2019 and 5.5% for 2020 through 2025) to determine the tax that was actually paid.
If the taxpayer is filing a joint return, the taxpayer’s spouse may also claim a credit for their ownership interests and shall separately be eligible for a credit resulting in a married couple filing jointly to contribute up to $20,000. The applications must be submitted separately. If the taxpayer(s) chooses to be preapproved under this option, they are not allowed the additional amounts normally allowed an individual. If the taxpayer is preapproved for an amount that exceeds the amount that is calculated as allowed when the return is filed, the excess amount cannot be claimed by the taxpayer and cannot be carried forward. The new limit will be reduced by any amounts previously approved.
Which schools are participants in the ALEF Fund?
ALEF Fund Partner Schools:
- Ahava Early Learning Center
- The Alfred & Adele Davis Academy
- Atlanta Jewish Academy (Formerly GHA & Yeshiva Atlanta)
- Chaya Mushka Children’s House
- Congregation Beth Jacob Preschool “BJ”
- Congregation Beth Shalom- Alefbet Preschool
- Congregation B’nai Torah Preschool
- Congregation Etz Chaim Preschool
- Felicia Penzell Weber Jewish Community High School
- The Epstein School- Solomon Schechter School of Atlanta
- JEA Preschool Savannah
- MJCCA Preschools (Weinstein and Sunshine)
- Morah Carol’s Place
- Temima-The Richard and Jean Katz High School for Girls
- Temple Beth Tikvah Early Education Center
- MJCCA Preschools (Schiff)
- Torah Day School of Atlanta
- Torah Tots – Chabad of North Fulton
- Temple Sinai Preschool
- Chabad of Cobb Preschool
- WELC at The Temple
Can I designate some or all of my contribution to a school represented by another SSO?
Yes, just let the ALEF Fund administrator know. We will make sure your contribution gets where you want it to go.
If I redirect some of my Georgia tax payments to ALEF, can I designate the student who will benefit from the financial assistance?
No. Although a donor to ALEF may designate a school, no designation of individual students is permitted. Per most recently amended legislation (HB 283): “(1) The tax credit shall not be allowed if the taxpayer designates the taxpayer’s qualified education expense for the direct benefit of any particular individual, whether or not such individual is a dependent of the taxpayer. (2) In soliciting contributions, a student scholarship organization shall not represent, or direct a qualified private school to represent, that, in exchange for contributing to the student scholarship organization, a taxpayer shall receive a scholarship for the direct benefit of any particular individual, whether or not such individual is a dependent of the taxpayer. The status as a student scholarship organization shall be revoked for any such organization which violates this paragraph.”
Can I change the designation of my contribution after I have completed the contribution process?
You are able to make changes to your pledge regarding amount and school designation up until the funds have been deposited into that school’s designated account at ALEF.
How does a tax credit differ from a deduction?
A tax credit is significantly more beneficial than a deduction. A credit reduces your Georgia taxes dollar-for-dollar while a deduction reduces the taxable income upon which taxes are calculated.
How do I know what my Georgia income tax liability is?
Your Georgia income tax liability is typically Georgia’s marginal tax rate (5.75% for 2021) multiplied by your Adjusted Gross Income (AGI). If your income and deductions will not change much from the prior year, you can look at Line 16 of your Georgia income tax return (Form 500) for your income tax liability for the prior tax year and estimate your tax liability accordingly. Of course, only an accountant or other tax professional can provide you with a solid estimate of your upcoming Georgia income tax liability.
What if my Georgia income tax liability is less than the amount I contributed to ALEF? Do I lose that money?
For taxpayers who contribute to ALEF as individuals who are single, married filing separate, married filing jointly or on the entity level: no, you do not lose the money. The tax credit will apply toward your taxes for up to five future years. Taxpayers who contribute to ALEF as owners of pass-through entities cannot carry-forward any education expense tax credits.
Why should I submit my application now?
The State has placed a yearly cap on the amount of credit available at $100 million. That means that every school, tax payer, and corporation in GA is drawing from the same exact pool of credits. Once the funds are used up, you will have to wait until next year to participate in the program. Once funds are deposited, they are immediately available to help families seeking an educational choice for their children. The yearly cap has more recently not been met on the first day of the year as in year’s past but this trend could change at any point in time.
I usually get a refund from Georgia. What happens if I donate to ALEF Fund?
For taxpayers who contribute to ALEF Fund as individuals who are single, married filing separate, or married filing jointly, if your Georgia income tax liability is at least as much as your ALEF Fund contribution, your refund will increase by the amount of your donation. If on the other hand, your state income tax liability is less than the amount of your contribution to ALEF Fund, the amount of the unused credit can be carried forward for up to 5 years.
What is ALEF’s Tax ID Number?
ALEF’s tax ID number (FEIN) is 26-2919210
When do I need to pay my approved tax credit?
Once your application is filed by the State, you will get a letter of approval from the Department of Revenue by mail, within 30 days of the filing. You have exactly 60 days from the date of approval to fund your ALEF contribution.
You may pay by check, payable to ALEF Fund, Inc., or by credit card. Payment can be made online by credit card, or a check can be mailed.
Who pays the credit card fees?
The Alef Fund absorbs credit card fees- we do not charge you or the schools for using your credit card.
Is this donation a charitable deduction on my Federal return in addition to the credit?
For contributions made before August 27, 2018, yes. The law does require that you increase your State income by the amount of your Charitable Deduction on your Federal Return (donation amount). For contributions made on or after August 27, 2018, the IRS adopted a ruling that eliminates the ability to take a Federal charitable contribution deduction when claiming the State tax credit. In December, 2019 the IRS issued a proposed ruling (REG-107431-19) that in certain circumstances may allow for C corporations and specified pass-through entities to treat their contribution to the ALEF Fund as a business expense deduction on their entity’s Federal tax return in addition to just receiving a dollar for dollar GA tax credit. If you own a business that is regarded as separate from its owner for tax purposes, you may wish to consult with your tax advisor to determine if the proposed IRS ruling applies to your particular facts and circumstances.
Can I use a Donor Advised Fund (DAF) or IRA to make my ALEF Fund contributions?
No. A contribution from the Donor Advised Fund (DAF) or from and IRA may be accepted by the ALEF Fund since the ALEF Fund is a 501(c)3 organization. However, no tax credit and no charitable contribution deduction may be claimed for a contribution to the ALEF Fund that is made out of a Donor Advised Fund (DAF) or an IRA.
FAQs for CPAs
Which income can be included in the computation?
Income from the following sources is included in the computation:
- LLC’s, Partnerships and S Corporation.
This includes self-employed taxpayers who file a Schedule C with their personal tax return. As long as the entity is legally formed as an LLC, then 100% of the earnings from this entity are included in the computation.
If income is reported as a sole proprietor on IRS Form Schedule C, can this income be included in the computation?
Only if the entity is legally organized as an LLC. You may consider establishing a Georgia LLC effective January 1 so this income can be included.
What income can be considered in the computation for LLC, Partnerships, or S Corporations?
All types of income items passed through to you on your K-1 PLUS other sources of income from the entity, such as wages.
How does HB 149 affect my participation in the ALEF Fund?
For 2022 tax credit applications, ALEF Fund offers a brand-new benefit for pass-through businesses (Partner in a partnership and S-Corp only). A new ruling allows a SALT (state & local income tax) limit workaround, coupled with a more generous ALEF Fund tax credit opportunity, per Georgia HB 149.
Pass-through businesses may elect to pay state income tax at the entity level and may contribute to ALEF Fund at the same generous limits as C-Corporations, up to 75% of the entity’s Georgia income tax liability (effective in 2022).
Please read HERE for more information. We recommend that you consult with your tax professional about this tax planning opportunity, as ALEF Fund does not provide tax advice.
Can I use a Donor Advised Fund to make my ALEF Fund contributions?
No. A Donor Advised Fund is a non-eligible entity. Only individuals, Partnerships, Trusts, S Corporations, and C Corporations are eligible to make contributions for the Georgia Qualified Education Expense Tax Credit. A contribution from the Donor Advised Fund may be accepted by the ALEF Fund since the ALEF Fund is a 501(c)(3) organization. However, no tax credit and no charitable contribution deduction may be claimed for a contribution to the ALEF Fund that is made out of a Donor Advised Fund.
Can I use an IRA to make my ALEF Fund contributions and receive a tax credit?
No. An IRA is a non-eligible entity. Only individuals, Partnerships, Trusts, S Corporations, and C Corporations are eligible to make contributions for the Georgia Qualified Education Expense Tax Credit. A contribution from an IRA may be accepted by the ALEF Fund. However, no tax credit and no charitable donation deduction may be claimed for a contribution to the ALEF Fund that is made out of an IRA. If you are using part of your IRA’s required minimum distributions to make a Qualified Charitable Distribution (QCD) to the ALEF Fund, you may be eligible to reduce your taxable IRA distribution but you cannot claim the Georgia Qualified Education Expense Tax Credit or take a charitable donation deduction on Schedule A of your personal income tax return. Please consult your tax advisor regarding QCD’s and whether or not you are better off claiming a QCD out of your IRA or making the donation personally to get a dollar for dollar Georgia tax credit.
If I am a shareholder in an S Corporation what income can be considered in the computation?
All types of income items passed through to you on your K-1 PLUS other sources of income from the entity, such as wages.
If I own an interest in multiple entities and some have losses and some have income, do I have to include all the entities?
No, you can pick and choose which entities to include in the calculation when you apply for the credit. Which entities you actually include are determined when you file your actual income tax return. You can choose the entity/entities which have profits, and exclude those with losses in the computation.
What if I have tax credits in excess of what I need for my upcoming tax return?
The individual credit limit of $1,000/$1,250/$2,500 annually can be carried forward for five years.
The flow-throw credit taking into consideration income from LLC’s, Partnerships, and S Corporations must be used in the current year, the State does not allow you to carry this credit forward to future years.
What State of Georgia Form is used to report and compute this credit when I file my tax return?
How do I know if I pay AMT?
The AMT shows up on Line 45 on Page 2 of your 1040 tax return; if you are paying AMT, the amount will be reflected on this line.
Since AMT is no longer applicable for many taxpayers under the new Federal tax law, can participating in the ALEF Fund still reduce my Federal tax liability?
Under the new Federal tax law, State and Local Tax (SALT) payments are now limited to a maximum deduction of $10,000. They are shown as an Itemized Deduction on IRS Form Schedule A and Charitable contributions are also deducted as Itemized Deductions on IRS Form Schedule A. Effective for the 2018 tax year, single taxpayers with itemized deductions that exceed the standard deduction of $12,000 and married taxpayers with itemized deductions that exceed the standard deduction of $24,000 will generally obtain a Federal tax savings equal to their applicable marginal Federal tax rate. Under tax law prior to the 2018 tax year, these tax savings were only available to taxpayers subject to AMT tax. Under the new Federal tax law, all taxpayers that itemize deductions get to realize these tax savings.
Here is an example: If you are a single taxpayer in the 35% Federal tax bracket that has itemized deductions in excess of $12,000 before making any ALEF Fund contribution, then your Federal tax savings will be $0.35 for each $1 you are eligible to contribute to the ALEF Fund. Thus, if you are eligible to donate $10,000, your Federal tax savings will be $3,500 under this example. Since the ALEF Fund contribution is used as a Credit against Georgia income tax, it cannot also be used as an itemized deduction on your Georgia income tax return. The result is higher Georgia tax of $10,000 times 5.75% = $575 (Note that recent Georgia tax law will reduce the Georgia tax rate from 6% to 5.75% in 2019. For 2020 through 2025, the rate will drop to 5.5%). Thus, with a Federal tax savings of $3,500, less the Georgia tax cost of $575, yields a $2,925 savings for a $10,000 contribution to the ALEF Fund, or 29.25%.
Since many taxpayers will be capped at the $10,000 SALT deduction, there is no longer any deduction available anymore for paying state taxes versus taking a Contribution deduction on the Federal return and a tax credit on the Georgia tax return. Under tax law prior to the 2018 tax year, taxpayers who contributed to the ALEF Fund and itemized their deductions would end up with no net impact to their overall itemized deductions because they would be shifting from a State tax deduction to a Contribution deduction. Due to the $10,000 State and Local tax deduction cap, there is no longer any deduction for paying State and Local taxes to the extent they exceed $10,000 for the year. While taxpayers are no longer able to deduct the payment of their Georgia income and property taxes exceeding $10,000, taxpayers will continue to be able to take a Charitable donation deduction for their contributions to the ALEF Fund on their Federal income tax returns.
For donations made after August 27, 2018 – No. Due to a proposed IRS tax rule issued on August 23, 2018, contributions made after August 27, 2018 no longer receive a Federal tax deduction for donations to the extent you receive a state tax credit for such donation. As a result, if you itemize your deductions, contributions made to the ALEF Fund will not be allowed as a charitable tax deduction and you will not receive any Federal tax benefit. Similar to contributions made under previous tax law, the amount contributed can be used as a Georgia Income Tax Credit on your Georgia Income Tax Return.
Can participating in ALEF Fund reduce my Federal AMT?
Since State tax payments are deducted as Itemized Deductions on IRS Form Schedule A and Charitable contributions are also deducted as Itemized Deductions on IRS Form Schedule A, there is not impact to total Itemized Deductions and Taxable Income. Thus, Federal Taxable Income and Tax remain unchanged.
When the AMT is computed on IRS Form 6251, the computation includes an add-back for State tax payments. With less State tax payments, AMT will be less.
If you pay at least $3,500 in AMT, and you shift $10,000 in State tax payments to ALEF Fund, then your AMT could be $2,500-$3,500 less.
Since ALEF Fund contribution is used as a Credit against State of Georgia income tax, it cannot also be used as an itemized deduction on your Georgia income tax return. The result is higher Georgia tax of $10,000 times 6% = $600. Thus with an AMT savings of $3,500, less the Georgia tax cost of $600, yields a $2,900 savings for a $10,000 contribution to the Alef Fund, or 29%.
For donations made after August 27, 2018 – No. Due to a proposed IRS tax rule issued on August 23, 2018, contributions made after August 27, 2018 no longer receive a Federal tax deduction for donations to the extent you receive a state tax credit for such donation. As a result, if you itemize your deductions, contributions made to the ALEF Fund will not be allowed as a charitable tax deduction and you will not receive any Federal tax benefit. Similar to contributions made under previous tax law, the amount contributed can be used as a Georgia Income Tax Credit on your Georgia Income Tax Return. As a result of the new proposed IRS tax rule, itemizing taxpayers subject to AMT tax or limited due to the $10,000 SALT deduction cap can no longer reduce their tax liability by shifting state taxes to charitable donations since the donation is no longer deductible under the new proposed IRS tax rule.
For a contribution made after August 27, 2018 will I pay more in tax than the tax benefit I receive from my ALEF Fund contribution?
For most taxpayers, the tax benefit will be equal to the amount contributed. While itemized taxpayers will no longer receive any Federal tax benefit for a charitable tax deduction, everyone will still get a dollar for dollar tax credit on your Georgia Income Tax return which thus reduces your Georgia Income Tax liability by the same amount you paid for the ALEF Fund contribution. This makes the contribution essentially similar to an estimated tax payment. As a result, for the large majority of taxpayers contributing to the ALEF Fund, there will be no net tax savings but there will also be no tax cost.
There could be a tax cost for a very small contingent of ALEF Fund contributors. If you itemize deductions on your Federal return but have less than $10,000 in SALT deductions, making a donation to the ALEF Fund would reduce your SALT deduction and thus increase your Federal and Georgia tax liability. However, the dollar for dollar Georgia tax credit would still be allowed.
How do state tax credit limits affect me?
Under the new Georgia House Bill 217 recently passed, the statewide limit for the Qualified Expense Tax Credit is increased from $58 Million to $100 Million. This increased credit cap is effective for tax years beginning on January 1, 2019 and ending on December 31, 2028. The tax credit cap goes back down to $58 Million beginning on January 1, 2029. These tax credits are approved on a first come, first served basis. In 2014, the credit cap was reached on January 22, 2014. Since 2015, the entire cap has been met on the very first business day of the year.
Even with the increased credit cap, the historical demand, plus the expected increased demand for tax benefits under the new tax law, it is expected that the pre-approved contributions for each year will continue to exceed the cap. As a result of taxpayer requests to Georgia for pre-approval of contributions exceeding the annual credit caps, Georgia taxpayers are currently approved for a prorated percentage of their intended contribution amounts. For example, if Georgia pre-approves $200 Million for the 2019 education expense tax credits, taxpayer contributions will be prorated down to a proration percentage of 50% since the credit cap for 2019 is $100 Million. In recent years, the proration percentage has been between 45% and 55%. However, it is hard to tell where the 2019 and future proration percentages will end up as a result of the increased cap and the expected increase in demand for the Georgia education credit.
I want to be part of ALEF Fund, what is next?
The ALEF Fund
1440 Spring St. NW
Atlanta, GA 30309
Fax: 678.495.9927 E-mail: email@example.com.
If you have any tax questions, please consult your tax advisor or you may contact Todd Koransky, CPA, and ALEF Fund Board Member. Contact Todd at Williams, Benator & Libby, LLP at firstname.lastname@example.org.