A New Tax Credit For Illinois Donors

Tax News You Can Use | For Professional Advisors

Jane Ditelberg, Director of Tax Planning
Michael D. Paull, Regional Director, Financial and Institutional Advisors

May 19, 2025

A New Tax Credit for Illinois Donors

This year the Illinois Gives Act, passed initially in 2022, came into effect. It provides an incentive for Illinois taxpayers to contribute to permanent endowment funds at qualified community foundations. A donor making an authorized contribution is eligible for an Illinois tax credit for up to 25% of the donation. To claim the credit, the donation must be made in tax years 2025 to 2029. Note that the credit is not automatic: The Illinois Department of Revenue has a budget of how many credits it can grant, and those are allocated among qualified community foundations across the state, so the size of the gift, the timing, and the recipient(s) are also important for determining the availability of the credit.

What is a Qualified Community Foundation?

To be eligible to receive authorized contributions and issue Certificates of Receipts (CORs) to donors, a community foundation must receive approval from the Illinois Department of Revenue (IDOR) and be certified as a Qualified Community Foundation (QCF). Foundations can submit their applications through the IDOR’s website at MyTax Illinois. To be considered, the foundation needs to be a community foundation, eligible to receive charitable contributions as a 501(c)(3) organization, and meet the accreditation requirements of the Community Foundations National Standards organization (The Program | Community Foundation National Standards).

A certification as a QCF expires at the end of the calendar year in which it was issued, and a foundation must reapply annually to continue to be eligible.

What is a Contribution Authorization Certificate?

In order to make an authorized contribution, the donor must first receive a Contribution Authorization Certificate (CAC) from the Illinois Department of Revenue. While a taxpayer can apply for a CAC up to 15 days after a donation is made (as long as the application is made in the same tax year), there is no assurance that the taxpayer will receive the credit until they receive a CAC. The credit, and thus eligibility for a CAC, depends on the IDOR not having already issued all of the credits authorized for the year, the donor not having reached the limit on credits allowed to a donor, and the QCF must not have reached the limit for donation to a particular entity. If the CAC is obtained in advance of the contribution, the taxpayer has 10 days following the issuance of the CAC to complete the gift.

What is a Permanent Endowment Fund?

An endowment fund is one where the charity can spend the income for its charitable purpose but may not touch the principal. The assets in a permanent endowment are held to continue generating revenue for the charity’s operations and projects over time. To qualify to receive contributions that qualify for the tax credit as a permanent endowment fund (PEF), the endowment must be perpetual and it may make charitable grants solely for the benefit of Illinois residents, Illinois charities and charitable projects located in Illinois. The spending rate must be set by the foundation’s policy and may not exceed 7%.

Finally, transfers to a Donor Advised Fund are not eligible for the credit no matter what its purpose or policies are.

What is an Authorized Contribution?

Taxpayers can apply for the credit using the MyTax Illinois website.¹ If approved, the IDOR will issue the CAC. The credits are granted on a first come, first served basis, provided that (a) the total credits for a single calendar year for the entire state may not exceed $5 million, (b) the total credits for contributions to a single QCF cannot exceed $750,000 for a single calendar year, and (c) the total credits for a contributions by a single donor cannot exceed $100,000 ($200,000 for married filing jointly). In addition, to make sure that the credit is available for gifts of all sizes, a portion of the available credit is reserved for gifts under $25,000. A separate CAC is required for each donation if the donor makes authorized contributions to multiple PEFs.

How Does the Credit Work?

The taxpayer who makes an Authorized Contribution and receives a CAC is entitled to an Illinois income tax credit for the amount donated. The maximum credit is $100,000 per taxpayer or $200,000 for a married couple, which translates to maximum donations of $400,000 per taxpayer or $800,000 for a married couple. If the credit exceeds the taxpayer’s tax due for the year of the donation, the credit can be carried forward into five subsequent tax years. The tax credit cannot be claimed against tax owed for prior tax years.

What is a COR?

Once the PEF receives the donation, they issue a Certificate of Receipt (COR) to the taxpayer. The taxpayer must attach a copy of the COR to the taxpayer’s return for each tax year in which the credit or any portion of the credit is claimed. A QCF can see all the CAC’s issued for donations to them via the QCF’s MyTax Illinois account.

Example:

Alex and Brook wish to contribute $200,000 to the endowment fund of the Anytown Illinois Community Foundation (AICF) in 2025. The AICF makes grants to charitable organizations in Anytown and the surrounding county to support health care, food and nutrition, and education programs. They inquire and find that AICF applied for QFC status in December 2024 and its application was approved. In addition, AICF has only received $50,000 in donations to its PEF so far this year. Alex and Brook then apply for a CAC through the MyIllinois Tax website. They are pleased when they learn that their CAC has been accepted, and they complete their donation within 10 days of receiving the CAC. Upon receipt of the funds from Alex and Brook, AICF verifies the grant of the CAC by logging into AICF’s account on MyTax Illinois. They then issue a COR to Alex and Brook. Alex and Brook are now entitled as a married couple filing jointly to a tax credit for 25% of their gift, or $50,000. As their Illinois tax liability is $20,000 in 2025, they can claim $20,000 of the credit in 2025 and carry the remaining $30,000 for up to five years.