Scholarship Tax Credits

  Download the Brief in PDF / E-Reader Compatible Format

As of Feb. 2, 2016, scholarship tax credits were available in 18 states. Scholarship tax credit programs are used to provide a form of school choice, allowing individuals or corporations to receive a tax credit on state taxes for donations made to grant private school scholarships. Scholarship tax credit programs are also known as tuition tax credits and education tax credits. Some states provide parents the opportunity to deduct all or a portion of their child’s private school tuition from their state taxes. Others provide corporations the ability to donate to an approved non-profit scholarship funding organization and apply for a tax credit for the donation. 

These scholarship programs target students in K-12 education and allow students the opportunity to choose among a list of private schools or public schools outside of their district. The state does not have to appropriate funding for the students to attend public school if they attend a private school. This also applies when students attend public schools outside of their districts and the funding is provided by the scholarship or by a student’s family. 

Education tax credits vary greatly state to state. Alabama1 and Arizona2,3 have programs codified in statute that provide the tax credits to individuals and corporations, while Florida4 and Kansas5 provide
tax credits only to corporations and Louisiana6 and Nevada7 provide tax credits to individuals. 

Opponents of these tax credits for education voice concern over the lack of oversight that state education agencies have over the private schools that receive funds from the tax credit programs and the ability to adequately serve students with disabilities. State education accountability systems for public schools require standardized testing to keep public schools accountable.8

Proponents maintain that these programs enable more families to take advantage of a wide range of education opportunities and lower the taxes of  parents of school age children, giving them the ability to keep more of their own money to spend on their families.9

School choice, including scholarship tax credit programs, is a contentious issue but one that continues to gain traction in legislatures across the country. While historically, the issue of school choice runs along
partisan lines, over the past few years a shift toward greater bipartisan support of these programs has emerged.10 State leaders in education seek to provide greater opportunity for students and improve student achievement within public schools and outside of the public sector.

Looking at the implementation of scholarship and education tax credit programs, key policy questions arise. Policymakers hope to find the answers to these questions within data from existing programs
in states. For example, Florida requires the use of standardized tests for private schools receiving scholarship tax credit funds to assess the ability of the program to improve student achievement.

Since the start of 2016, 12 states have introduced legislation on the topic, including a bill in New Hampshire to repeal an existing education tax credit program. As states explore deeper into this issue,
data on existing programs will be a resource for policymakers in states without these programs. 

Education leaders are delving into how this issue affects equity issues such as racial balance and special education. Many states found greater support for these programs when they targeted at-risk or high-need populations such as low-income families and students with disabilities.11 The discussion around this topic continues to focus on how to best provide every child with the opportunity to receive a high-quality education.

References:

1 Alabama Education Tax Credit law, Alabama HB 2013
2 Arizona Education Tax Credit law for individuals, A.R.S. 43-1089.
3 Arizona Education Tax Credit law for corporations, A.R.S. 43-1183.
4 Florida Education Tax Credit law, F.S. 220.1875.
5 Kansas Education Tax Credit law, 2014 KS HB 2506 - Sec. 55-61.
6 Louisiana Education Tax Credit law, 2012 LA HB 969.
7 Nevada Education Tax Credit law, AB 165.
8 NEA Brief on School Vouchers, Special Education and Vouchers.
9 Workman, E. 2012. Vouchers, Scholarship Tax Credits, and Individual Tax Credits and Deductions. Education Commission of the States.
10 Workman
11 Povich, E. 2013.Tax Dollars for Private School Tuition Gain in States Pew Charitable Trust.
 

Scholarship Tax Credits

AttachmentSize
Scholarship Tax Credits.pdf1.79 MB