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Question of the Month ~ March 2013

 

Q. Which states in the Midwest offer tax credits for K-12 education-related expenses?

Three states in the Midwest, Illinois, Iowa and Minnesota, allow income tax credits or deductions for parents and guardians of students in elementary and secondary schools.
Iowa and Indiana offer a tax credit for charitable contributions to nonprofit scholarship-funding organizations.
The exact types of expenses eligible for tax credits or deductions — and the amount of the credits and deductions — vary from state to state.
Minnesota offers tax deductions for education expenses, such as tuition, textbooks and other fees for both public and private schools. It allows $2,500 for each dependent in grades seven through 12 and up to $1,625 for each dependent in kindergarten through sixth grade.
In addition to this tax deduction, the state provides an income tax credit for 75 percent of K-12 education-related expenses. The credit is for up to $1,000 for each child in kindergarten through 12th grade and is subject to a phaseout that begins when a family’s income exceeds $33,500. The same education-related expenses are eligible for the tax credit as for the deduction. However, payment of non-public-school tuition does not qualify for the credit.
Illinois taxpayers are eligible for a credit of up to $500 for education-related expenses in excess of $250, including tuition, book fees and lab fees.
Iowa’s K-12 education tax credit is the only one in the Midwest that includes extracurricular activities such as driver’s education, sporting events and speech activities. (Arizona also provides such a credit.) The credit amounts to 25 percent of the first $1,000 paid for each dependent; it also applies to textbooks and for tuition at any state-accredited public or nonprofit private K-12 school. In addition, Iowa offers a credit — 65 percent of the donation — to individuals and corporations that make contributions to non-public scholarship-granting organizations.
In Indiana, contributors to such organizations are eligible for a corporate or individual state tax credit of 50 percent against their total liability.
In both Indiana and Iowa, there is no limit to how much an individual can contribute to these scholarship granting organizations, but both states cap the total amount of tax credits they grant: $5 million per fiscal year in Indiana and $8.75 million in Iowa.

 

Question of the Month response written by Laura Tomaka, program manager for CSG Midwest.