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Home » Issues » Choice & Charter Schools » Just the FAQs – Tuition Tax Credits and Tax Deductions

Just the FAQs – Tuition Tax Credits and Tax Deductions

As of 2015, 16 states have enacted education tax credit scholarship programs, with half of these states enacting their programs in just the past three years. Tax credit scholarships programs are helping approximately 200,000 students enroll in the private school of their choice. The 16 states that currently have tax credit funded scholarship programs are: AL, AZ, FL, GA, IA, IN, KS, LA, MT, NH, NV, OK, PA, RI, SC, VA.  The School Choice Today: Education Tax Credit Laws Across the States Ranking and Scorecard 2015 provides analysis and state-by-state comparisons of the 16 tax credit programs currently in existence in order to serve as a roadmap for lawmakers, parents, and advocates looking to bring about substantive and lasting change and foster a marketplace where parents have the power to make choices among excellent options.

The following are answers to frequently asked questions (FAQs) regarding tuition tax credit and tax deduction programs. The answers to these FAQs are intended to provide only an introductory overview of key issues.

What Are Tuition Tax Credits and Tax Deductions?

School tax credits refund expenses made toward education up to a fixed figure, while tax deductions minimize the expense of education by making them itemized deductions. The qualifying criteria cover educational expenses such as tutoring, texts, and computers; in the states that have them so far, they also cover private school tuition. State legislation determines the amount of credit and what can be included in the deductions. It also states whether private school tuition qualifies.

Education tax programs fall into one of two categories. The first is a personal use credit, which allows individual families to reduce their tax liability. The second category is a donation tax credit, which allows individuals and businesses to reduce their tax liability by contributing to organizations that disperse funds to families to help them pay for their children’s education.

Won’t These Programs Only Benefit the Wealthy?

No, in fact, the opposite is true. Because donation tax credits create a pool of funds that is explicitly meant to help families pay for their children’s education, they offer more opportunities for low-income families to have the same choices in schooling that their wealthier counterparts enjoy. Many tax credit programs are limited to low-income or special needs students.

Are Tax Credits Vouchers?

No. Although they are similar, and both promote school choice, tax credit and voucher programs are different in important ways. Tax credits reward parents and business owners for contributing their own money to educate children. Vouchers are given to families by states and localities to give parents the ability to choose where their children will attend school. Since voucher programs are funded by public dollars, they are more difficult to pass. Many state constitutions prohibit states from using state tax dollars toward any religiously-affiliated business, or in this case, schools. A study showed 19 states have articles in their constitution preventing voucher programs and 12 states have legislation that could prevent them from implementing voucher programs.

Tax-credit programs are a viable answer for states that are unable to pass voucher programs because they are lacking legislative support or because of state constitutional barriers. Tax credits go directly to private donors, therefore, public (or government) money is not financing the program. Therefore, modern day, tax-credit or tax-deductions legislation has never yet been overturned by a court.

Where Can I Find Them?
For a complete list of tax credit programs and other school choice programs across the country click here.