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Email Luther

313 South,
State Capitol
(608) 266-0751
PO Box 7882
Madison, WI

(800) 991-5541

Private School Tuition Tax Break

One of the biggest decisions parents make is where to send their children to school.  For some families, the choice is simple; the local public school is the best place for them.  It might even be the same school the parents went to when they were young.  Some families are looking for something different though, which might mean a private school, a public school in another district or a virtual charter school.  Making the choice to send your children to private school just got a little more affordable, under a new tax deduction included in the recently approved state budget. 
The tax deduction begins in the 2014 tax year.  Taxpayers can deduct up to $4,000 for tuition paid for dependent children in grades kindergarten through eighth and up to $10,000 for high school students. The tax deduction is expected to save Wisconsin parents up to $30 million in 2014-2015.  Since the tax break is set up as a deduction, the average Wisconsin family would get a $240 tax cut per elementary and middle school child and a $600 tax cut for each high school student.  
It is important to remember the difference between a tax credit and a tax deduction.  A tax deduction, like the new one for private school tuition, reduces an individual’s taxable income but cannot reduce taxable income below zero.  If a tax deduction is $1000 and an individual’s tax rate is 25 percent, they would receive $250 off their tax bill.  A tax credit, on the other hand, directly reduces an individual’s tax liability, meaning that a tax credit lowers your tax bill dollar for dollar.  Tax credits are often considered subsidies in the tax system, whereas tax deductions represent reductions in a taxpayer’s ability to pay.  It makes sense that the private school tuition tax break is set up as a deduction, because by paying tuition, an individual has less income available to pay state income taxes. 
Wisconsin is now one of eight states that offer a tax break for families who choose to send their children to private schools. Looking at our neighboring states, Illinois and Iowa both offer tax credits for private school tuition.  Illinois offers a tax credit of $500 per family and Iowa offers a credit of $250 per child.  Indiana offers a deduction or $1000 per child.  Minnesota offers both a deduction and a tax credit. Their tax credit is available to families based on income and number of children.  Opponents of the plan to offer this tax deduction have said that it is too generous, compared to other states.  While the deduction numbers look generous, since the tax cut is structured as a deduction, families would not receive the entire amount off their tax bill.  The other thing to keep in mind, for opponents of this deduction, is that it was part of an overall package of tax changes and was agreed upon, in part, to ensure that the tax cuts reduced the tax burden for as many Wisconsinites as possible.
I would be surprised if this tax deduction will send waves of children from the public school system to private schools but it might make it easier for parents to afford private school if they feel that is the best option for their children.  As we learn more and more about how children learn, we have learned that children learn differently.  That is why it is important for parents to have choices about where to send their children to school.  In Wisconsin parents are fortunate to have statewide open enrollment that lets parents send their children to a different school district.  In addition, we have a variety of private schools and public charter schools.  This tax deduction makes the choice of sending a child to a private school a little more affordable.