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Education Program

Tuition Tax Credits and Deductions

In an effort to make private school tuition more affordable to a wider range of parents, four states currently offer some form of tax relief-Minnesota, Iowa, Arizona and Illinois. These programs all differ in their approach and scope.

• Minnesota allows a tax deduction for tuition, textbooks and transportation for parents of both public and private school students of up to $1,625 for each dependent in grades K-6 and $2,500 in grades 7-12. Although there is an income tax credit for families with incomes under $33,500, the credit cannot be used for tuition. The Minnesota Department of Revenue has estimated that 273,000 will claim the deduction, costing the state $14.5 million in forgone revenue annually.
• Iowa established its tuition tax credit program in 1987. Parents can claim a tax credit of 25 percent of the first $1,000 spent on private school tuition and nonreligious textbooks.
• Arizona taxpayers can claim a tax credit for up to $500 donated to a school tuition organization. This charitable organization must allocate at least 90 percent of its annual revenue for educational scholarships or tuition grants to children, allowing them to attend any qualified school of their parents' choice. The state passed a $200 tax credit for fees paid to a public school in support of extracurricular activities at the same time. The Arizona Joint Legislative Budget Committee has estimated the net impact to be from a low of $6.5 million to a high of $20.6 million in the first year and up to $41.2 million in its third year.
• After a legislatively passed program was vetoed in 1997, Illinois enacted a tuition tax credit program this year. Taxpayers can claim a credit equal to 25 percent of qualified education expenses-tuition, books and lab fees-up to a maximum of $500.

These programs are different, but they share two important characteristics. First, they include credits and deductions for expenses such as textbooks, student fees, etc. in addition to private school tuition so that all parents qualify for some credit, a fact that has not been overlooked by the courts. Second, they all are somewhat limited in the amount of tuition relief offered, thus lessening the potential impact on public education. The maximum amount available is $250 in Iowa and $500 in Arizona. In 1998, Colorado voters failed to pass a ballot initiative, by a 60-40 margin, that would have created a more expansive tuition tax credit program of up to $3,600.

At least 14 state legislatures are considering tuition tax credit/deduction bills during the 2000 legislative session with varying scope and funding. Arizona, Colorado, Hawaii, Illinois, Iowa, Kansas, Kentucky, Massachusetts, New York, Oklahoma, Rhode Island, South Carolina, Virginia and West Virginia all have proposed legislation.

For more information on the topic, contact Michelle Exstrom @ (303) 364-7700 x 1392.

Additional information on the web:

Center for Education Reform
Heritage Foundation: What's Happening in the States

Education Home Page