The Tax Credits Program for School Choice

Studies | Education

No. 213
Sunday, March 01, 1998
by Linda Morrison


Existing Tax Credit Plans

A few states have pioneered in either tax deductions and/or tax credits, applicable to both government and nongovernment school expenses. Some of the laws have withstood court challenges; others have yet to be tested.

"Some pioneering tax credit plans have withstood court challenges; others have yet to be tested."

Minnesota. For more than a decade, Minnesota has allowed taxpayers, in computing their state income tax, to deduct expenses for tuition, nonreligious textbooks and transportation for their children. The deduction, originally up to $650 for elementary schools and $1,000 for secondary schools, was recently increased to $1,625 and $2,500.

It can be taken for expenses in any nonprofit secular or nonsecular school or in any government school. Parents of children in government schools also can deduct supplemental, education-related expenses. In June 1997, Minnesota added a "refundable" education tax credit of $1,000 per child or $2,000 per family for families with incomes of $33,500 or less. The credit does not apply to private school tuition.

Iowa. An Iowa law passed in 1987 allowed taxpayers to itemize and deduct up to $1,000 of textbook and tuition expenses. It also provided, for taxpayers who use the standard deduction, a credit of 5 percent up to $1,000 for these expenses for each dependent. The law applied to both government and nongovernment school expenses, but only for taxpayers whose net income was $45,000 or less. In 1996 the Iowa Legislature replaced this law with a new statute that eliminated the deduction and raised the tax credit to 10 percent of the first $1,000 the taxpayer pays for tuition and textbooks, with a maximum credit of $100 per child. The new law allows the credit regardless of net income.

Arizona. Arizona passed an education tax credit law to take effect in 1998, but it takes a completely different approach. Taxpayers can take a credit of up to $500 for donations to charitable organizations that provide scholarships for children to attend private or parochial schools -- but the donations cannot be used for the taxpayer's own dependents.


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