As parents become increasingly dissatisfied with the performance of public schools, alternatives in the form of private, religious, charter, or home schools are growing in interest. However, the method of education funding remains a big obstacle between students and the quality education parents seek for their children. Most parents already pay for their child’s public education through taxes. When parents choose to educate their child privately they are effectively paying twice for education — once for a public education they don’t use and once for a private or homeschool education they do use.

In response to this problem, lawmakers at both the state and federal level have proposed varying forms of education tax credits and education tax deductions. They are designed to rectify the discrepancy by allowing parents to be reimbursed, at least partially, for tuition and other expenses for non-public education. A tax credit can be claimed (subtracted) against the amount of tax owed whereas a tax deduction is subtracted from a taxpayer’s gross income, lowering the total amount of earnings the final tax is payed on. Typically a credit or deduction will be equal to the amount of actual education expenses.

For example, someone owing $3,000, eligible for a $500 credit, would ultimately owe the government $2,500. The credit eases the financial burden for parents who choose to educate their children through private or homeschool. In this way, parents not using public education do not have to pay the full amount for a service they do not use or benefit from.

While many opponents of the tax credit say that this program will detrimentally affect the public school system by taking away funding from necessary programs, supporters realize that giving parents more freedom will encourage healthy rivalry between schools and that this competition will promote improved performance.

A credit or deduction could be helpful for homeschoolers. However, HSLDA opposes any tax break legislation that comes with governmental regulations. Homeschoolers have fought far too long and much too hard to throw off the chains of government regulation that hinder effective education and interfere with liberty. It would be inconsistent and foolhardy to accept government tax incentives in exchange for government regulation. However, HSLDA will support tax credits that promote educational choice without threatening any regulation

There are many different education tax credit models currently being proposed and discussed. Some include an actual tax credit for personally incurred educational expenses for one’s own child; others set up a middleman (usually called a scholarship tuition organization, STO) where any individual or corporation can give to the STO and receive a credit on their gifts. Usually, the STO is required to distribute at least 90% of all funds received to schools or students for educational expenses.

Whatever the education tax credit model, HSLDA continues to support and fight for education tax credits at the local, state and federal levels in order to eliminate the “double” taxation of private and homeschool parents.

Below are a list of education tax credit bills already on the books and key education tax credit legislation currently being offered by state and federal lawmakers.

Basic Information
Since 1987, Iowa, Minnesota, Arizona, and Illinois have each enacted education tax credit laws geared toward helping low income families, combating poor quality of public education, and helping students with learning disabilities. These credits are available for individuals, while Florida and Pennsylvania have also STOs that only businesses can contribute to.

Iowa was the first state to pass legislation providing for a tuition credit. In 1987, the Iowa General Assembly added to the Iowa Code in section 422.12 a credit “equal to twenty-five percent of the first one thousand dollars which the taxpayer has paid to others, outside the family, or each dependent in grades kindergarten through twelve, for tuition and textbooks of each dependent in attending an elementary or secondary school situated in Iowa, which school is accredited or approved under section 256.11.”

Ten years later, Arizona followed in Iowa’s steps with a credit applicable when cash contributions are made to a 501(c)(3) scholarship tuition organization (STO). An individual can receive up to a $500 deduction and corporations and joint-filers cap at $625 as outlined in section 43-1089 of the Arizona revised statutes.

Minnesota’s tax credit is similar to the Iowa statute, but allows for a more significant credit: seventy-five percent of education-related expenses instead of twenty-five, up to $1000. “Education-related expenses for a qualifying child in kindergarten through grade 12” are covered in the credit. Section 290.0674 was added in 1998 to the Minnesota statutes and specifies qualifying expenses as tuition, textbooks, personal computer, and transportation, but with more detailed specifications for each category.

In 1999, the Illinois legislature passed its version of the education tax credit that allows for up to $500 of tuition and materials expense to be deducted from state income tax. This provision is covered in 35 ILCS 5/201.

Each of these states offers tax credits for individuals, but Florida and Pennsylvania offer tax credits for business that make contributions to scholarship tuition organizations.

In Florida, businesses can contribute up to 75% of the amount of tax they owe to scholarship-granted organizations and receive dollar-for-dollar credit. Under section 22.187 of the Statutes, in effect since 2002, organizations can receive this credit, but the state has limited the number of credits it grants to $88 million annually.

In 2001, Pennsylvania’s Act 4 amended the Public School Code to allow up to a $200,000 tax credit for businesses that contribute to scholarship organizations. The credit received is 75% of the total amount they donate, up to the $200,000 cap. In 2004, the maximum amount of credits — $40 million — was exhausted by September.

Federal Legislation

As education choice is becoming more popular and vouchers — a direct governmental grant to private and charter schools — are gaining prevalence, education tax legislation is increasing in volume on both a federal and a state level.

Representative Ron Paul (R-14-TX) introduced the Family Education Freedom Act (H.R. 406) in January 2005 as a federal tax credit for students at public, private, parochial, religious, or homeschool that would allow up to a $3,000 credit for tuition expenses. Unique to this bill is its section on allowing for adjustment in the credit according to a rise in cost of living. With ten co-sponsors, this bill has been referred to the Committee on Ways and Means.

The Education, Achievement, and Opportunity Act (H.R. 441), introduced by Representative Chris Smith (R-4-NJ) on February 1, 2005, was also referred to the Committee on Ways and Means. This bill specifies a $2,500 credit for each child in elementary school and a $3,500 credit for those in secondary school and is only applicable to those with incomes under the $150,000 threshold amount, when filing jointly, and a $75,000 threshold in any other case. This bill does not specifically enumerate homeschoolers as being eligible to receive the credit, but it is applicable to private, parochial, or religious school.

State Legislation

States are also jumping on the bandwagon. Minnesota, Arizona, and Illinois, states that have current education tax credits, are trying to adjust and improve their laws, while Colorado, Indiana, Mississippi, New Jersey, New Mexico, North Carolina, Ohio, South Carolina and Virginia are considering new legislation.

Minnesota:
On February 7, 2005, Senator Bachmann introduced Senate File 816 as an adjustment to the current Minnesota education tax credit statute. The bill would change the current $35,000 family income threshold to read "250 percent of the federal poverty guidelines," allowing for future change in the poverty level and increases the maximum gross income to $56,000 for a family of five. It also allows for the threshold to be adjusted according to how many are in the family.

Senate File 1728, introduced by Senator Skoglund (D-62) on March 17, 2005, would impose extra restrictions on non-public educational establishments that take advantage of the educational tax credit in Minnesota.

Also in Minnesota, Representative Skykora (R-33B) introduced House Bill 1858 on March 16, 2005 to redefine the type of school eligible to receive funding from the scholarship tuition organizations already in place under Minnesota tax credit law and would allow homeschoolers to benefit from STO funds. Senate Bill 584, introduced by Senator Olson (R-33), also proposes to allow homeschoolers to participate.

Arizona:
Senator Gould authored an adjustment to the education tax credit in Arizona in February 2004 that was sent to the Education Committee. With five co-sponsors, Senate Bill 1493 specifically addresses homeschoolers and would allow them a $200 credit for each child. This requires an "affidavit of intent" to be on file with the county school superintendent and is only available to those who were homeschooled for at least six months out of the fiscal year.

Illinois:
Senate Bill 85, introduced January 26, 2005 and postponed in the revenue committee on March 3, increases the existing education expense tax credit from $500 to $1,000 per year. Senator Roskam introduced the bill and Senators Lauzen and Silverstein co-sponsor it. Senate Bill 296 was sponsored by Senator Dan Cronin (R - 21) and introduced to the Illinois Senate on February 3, 2005. This bill also increases the tax credit from $500 to $1,000 per year.

Colorado:
Representative Kevin Lundberg (R-49) proposed a $1,000 local property tax credit for homeschoolers, granting a credit of up to $1,000 for educational expenses in Colorado. The credit, as outlined in House Bill 1258, only applies to students previously enrolled in public schools.

Indiana:
On January 19, 2005, House Bill 1009 was introduced to the Indiana Legislature and sent to the Committee on Education. Proposing an initial $500 tax credit for educational expenses, and providing incrementally increased credits until it reaches $3,000 in 2014, this bill specifically provides the tax credit for tuition, supplies, and transportation for nonpublic education. Representative Robert Behning (R-91) authored the bill, which was referred to the House Committee on Ways and Means on February 21, 2005.

Mississippi:
House Bill 232 was introduced by Representative Fleming (D-2) in Mississippi on January 4, 2005. This bill proposes a tuition tax credit for up to one-third of the amount paid to non-public institutions, defined in the bill as private, public, and parochial schools, and provisions specifically allow for the inclusion of homeschoolers.

New Jersey:
In September 2004, Assembly Bill 3303 was introduced by Assemblyman Upendra Chivukula (D-17) and sent to the Assembly Education Committee. If passed, this bill would allow parents of gifted homeschooled children to deduct from their taxes 50% of approved distance learning classes, with a cap at $750. Class listing would be compiled by the Commissioner of Education and only students eligible for those classes would be allowed to receive the credit.

New Mexico:
Senator Komadina proposed Senate Bill 144 specifically for the benefit of homeschoolers. Homeschoolers, under the legislation, would be allowed a $3,500 tax credit for each child who was homeschooled for the entire school year ending in the taxable year. The deduction could be cut in half if the child was homeschooled for less than the full school year, but more than half the year.

North Carolina:
Representative Stam (R-37) introduced House Bill 931 on March 24, 2005. This legislation would allow a tax credit of up to $1,250 per semester children who are enrolled in non-public schoolers. Only available to filers under a certain cap ($100,000 for married filing jointly), the bill would also allow the County of Commissioners to appropriate funds for educational expenses of resident children, up to $500.00.

Ohio:
Allowing a $100 credit for instructional materials, Ohio's House Bill 40 was introduced on February 3, 2005 by Representative Schaffer (R-5).

South Carolina:
With House Bill 3204 and House Bill 3012, South Carolina is the only state to have two education tax credit bills introduced so far this year. Both bills were introduced on January 11, 2005 and referred to the Ways and Means Committee. H.B. 3204 would be problematic for homeschoolers because it requires evaluation of education performance, which is simply another bureaucratic ring to jump through and more regulation on the freedom to homeschool. Representative Doug Smith's (R-32) H.B. 3012 calls for income and property tax credits for tuition, available to individuals and organizations through direct tuition payment and also contributions to scholarship organizations.

Virginia:
On January 21, 2005, Senator Christopher Saxman (R-20) introduced Senate Bill 2914 in the Virginia General Assembly. A period of action ensued before it was tabled in the Finance committee on February 2, 2005. The bill would have granted a tax credit of up to 25% of tuition paid by individuals (not to exceed $1,200 for joint filers) and 25% of contributions to non-profit scholarship foundations (up to $50 million, divided between public school and scholarship foundations).

Constitutionality Issues

While these tax credits are cited as hope for America's schoolchildren, opponents raise constitutionality concerns. In three states with existing education tax credit laws — Arizona, Illinois, and Minnesota — cases have been made against the credits based on the Establishment Clause, since credits apply for religious school tuition, too, and on the Blaine Amendment, which prohibits appropriating funds to religious or sectarian schools. All three states have upheld the constitutionality since government money is not being directly given to these institutions. The United States Supreme Court has already found voucher programs — specifically Ohio's — to be constitutional since it is offering choice and the federal money does not go directly to religious institutions, but rather to the parents to choose the educational institution.