A Parent’s Guide to Tax Breaks for Private K–12 Schooling
As school choice grows, so do tax benefits for private education
As school choice gains momentum across the country, families are discovering new ways to make private K–12 education more affordable—especially through the tax code. From refundable tax credits in states like Oklahoma and Idaho, to federal tools like Coverdell and 529 savings plans, a growing number of options are helping parents reduce out-of-pocket costs. In this post, we break down the latest state and federal tax benefits, highlight emerging trends like refundable tax credits, and offer a practical overview of how families can take advantage of these financial tools—just in time for tax season.
Federal Programs & Tax Breaks for K–12 Private Education
Currently, there is no federal tax relief for private K–12 educational expenses, as most federal tax credits and deductions for education are related to higher education. But, other federal programs, such as Coverdell Education Savings Accounts, indirectly help parents save money on K–12 private schooling.
Coverdell Education Savings Account (ESA)
Parents of students not enrolled in public schools can contribute up to $2,000 each year to a Coverdell account with tax-free interest. The money parents spend from these accounts isn’t taxed if used at private K–12 schools and qualified higher education institutions on behalf of the students.
The Coverdell ESA is a preferred option to a regular savings or investment account since the interest is tax-free for parents who know they’ll send their student to a private school. Nevertheless, Coverdell ESAs may expose investors to troubling fees and hidden charges depending on the provider and account balance. Moreover, the money saved through a Coverdell ESA can impact potential financial aid for higher education.
State-Based Tax Breaks for K–12 Education
A lesser-known tax break that is available to families in many states are the various individual K–12 tax credits and deductions. Alabama, Idaho, Illinois, Indiana, Iowa, Louisiana, Minnesota, Oklahoma, Ohio, South Carolina, and Wisconsin each offer taxpayers the opportunity to save anywhere from $100 to $10,000 on K–12 expenses.
Refundable Tax Credits
The programs are popular too, as every year, hundreds of thousands of taxpayers in these states claim credits on qualified expenses they made for their child’s education. In recent years, refundable tax credits have emerged as a model allowing families to receive tax credits for not only tuition but also other private educational expenses such as tutoring costs, textbook expenses, curriculum costs, and fees for nationally standardized assessments. Currently, only Oklahoma and Idaho have created these programs that afford significant customization for each student’s needs, but they should be applauded.
Oklahoma Parental Choice Tax Credit Act
Who Can Use It: All Oklahoma students are eligible for a refundable tax credit under the Oklahoma Parental Choice Tax Credit program, provided they have education expenses at an accredited private school or are “educated by other means” (e.g. homeschooling)
Taxpayer Credit/Deduction Cap: $5,000 to $7,500 (private school) / $1,000 (homeschool).
Idaho Parental Choice Tax Credit
Who Can Use It: All Idaho residents who are 18 or younger are eligible to participate. Students who have a disability that requires ancillary personnel, as defined in state law, are eligible through age 21.
Taxpayer Credit/Deduction Cap: $5,000 per eligible student (and up to $7,500 per eligible student who has a disability)
Section 529 savings plans are authorized by federal law but are operated by states. For decades, 529 plans have helped families save for future college expenses, but in 2017, the federal government passed a law allowing funds to go toward K–12 tuition expenses. Families can withdraw up to $10,000 annually or the cost of tuition — whichever is less — from the 529 account per year. Unfortunately, 11 states do not consider K–12 tuition an acceptable expense, meaning withdrawing funds in these states could mean additional taxes or penalties.
Alternative Ways to Financially Support K–12 Education Opportunities
Private School Choice Programs
Seventy-five school choice programs now serve over 1.2 million students in 34 states. These programs can help families surmount the financial barriers of accessing a private education for their students from kindergarten through 12th grade. Until recently, with the growth of refundable tax credits, funding levels had been much higher in other school choice program options, such as Education Savings Accounts and Vouchers, compared to individual tax credits and deductions. Our School Choice in America Dashboard can help you see which programs you are eligible for in your state.
Before- and After-School Care Deduction
The Covid-19 pandemic made it clear that learning happens inside and outside the classroom. The Child and Dependent Care Tax Credit accounts for this by providing tax relief for families whose children are in before-school and after-school programs.
Families with children under 13 can receive up to $3,000 for one qualifying child or $6,000 for two or more qualifying children. Additionally, the credit can be used by families who pay for public or private care so they can work or need the care to be able to work.
There are more options than ever to find financial support through the tax code to pay for a student’s private educational expenses. Still, we suggest that all readers speak with a financial expert before participating in any of the mentioned programs, as the information contained in this article should not be considered a substitute for professional tax advice.
