Tax Deductions and Tax Breaks for Private Schools

Can you deduct private school tuition?

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Maybe you've heard that your neighbor claims a tax credit for what she spends on her child's after-school program, or your cousin might get all sorts of tax breaks because his older teen is enrolled at the local community college.

You send your child to a private school, and it's somewhat costly, so you can surely claim your own tax break—right?

There is some help available for private elementary and high school costs, but it's limited, and the rules are tricky. Here's what you need to know about how private school costs could affect your taxes.

Few Tax Breaks Exist for K-12 Education

K-12 private school education expenses aren't tax-deductible at the federal level, at least not when paid directly by parents.

However, educational expenses are tax-deductible at the federal level for post-secondary and other types of costs. This would include community colleges, universities, trade or vocational schools, and pretty much any other accredited post-secondary education program.

In general, most education costs following high school could qualify for some kind of tax break. Grade-school and high-school tuition and expenses don't usually count. There are exceptions, which are discussed below.

Private School Costs for Special Needs

You can deduct private K-12 tuition for children with special needs if such schooling is medically or therapeutically required. There are a few details to this deduction.

First, a doctor must certify that special education is necessary. Second, you'll have to itemize your taxes to claim the deduction.

That means forgoing the standard deduction ($12,550 for individuals in 2021 and $25,100 for married couples filing jointly).

Special education costs are accounted for during tax time as an itemized deduction for medical expenses. Unfortunately, you can only deduct the portion of your medical expenses that exceeds 7.5% of your adjusted gross income (AGI) in the 2020 tax year.

The AGI threshold for deducting medical expenses has been in flux since the Tax Cuts and Jobs Act (TCJA) in 2017. That legislation temporarily reduced the AGI threshold to 7.5%. It was set to return to the previous threshold of 10% in 2019, but subsequent legislation kept the threshold at 7.5% through tax year 2020. It is set to rise to 10% again in tax year 2021—barring any further legislation.

Before-School and After-School Care Costs

You may be able to deduct the costs of child care either before or after school. This deduction falls under the umbrella of the Child and Dependent Care Tax Credit.

Whether you qualify for the Child and Dependent Care Tax Credit (CDCTC) will depend on whether you need to place your child in a before-school or after-school program so you can work or look for work. If you're married, your spouse must also work or be looking for work.

Your child must be younger than age 13—the Internal Revenue Service (IRS) takes the position that children 13 and older don't require supervised care when the parent is unavailable.

The credit applies to both private and public school programs, but you must separate the cost of the care from any tuition you pay if you send your child to private school. The school should be able to help you with this if your child care costs are rolled into your tuition payments.

The amount of the credit varies per taxpayer and is calculated on up to $3,000 in total work-related child care expenses for one child, or $6,000 for two or more children. If you spend $1,500 for the after-school care program and $500 for summer camp so you can work or look for work, you can claim a percentage of these costs as a tax credit.

The amount of the percentage depends on your AGI. It tops out at 35% for those with an AGI of $15,000 or less. The least you'll be able to deduct is 20%—this applies to anyone with an AGI of $43,000 or more.

In 2021, the American Rescue Plan temporarily expanded eligibility for the CDCTC, making it available at different levels to families with incomes up to $440,000, as well as making it refundable for low-income families. Families with incomes under $125,000 per year are eligible for the full 50% credit. If you did not qualify for the CDCTC before, you may when you file your 2020 taxes.

529 Savings Plans May Be Used for K-12 Education

529 savings plans have historically provided help with private post-secondary school expenses.

A 529 plan, also called a "qualified tuition plan," works similarly to an IRA but for educational purposes. At one point, these plans could only be used to pay for secondary education, but the TCJA changed tax law to allow parents to use these plans for K-12 education costs as well.

There are two types of plans: prepaid tuition plans and education savings plans. Every state sponsors at least one of them.

These plans are established and designated for a beneficiary's education costs. Contributions to the plan aren't tax-deductible at the federal level, but their growth is tax-free as long as your beneficiary uses the money for educational purposes.

Parents and anyone who would like to contribute to a 529 plan can do so with no limit, up to the plan’s maximum capacity.

One tax consideration that contributors should be aware of is the gift tax. The federal gift tax exemption is $15,000 per recipient per year in tax year 2021. (This amount has remained unchanged since tax year 2018.) Anyone who contributes more than $15,000 to a single person in a single year—whether through a 529 plan or otherwise—can be subject to the federal gift tax for the amount after the first $15,000.

The Coverdell Education Savings Account

Coverdell Education Savings Accounts were introduced by the Taxpayer Relief Act of 1997. They apply not only to post-secondary educational costs but to high-school and elementary-school expenses as well.

You can contribute up to $2,000 a year to a Coverdell ESA. Your contributions aren't tax-deductible, but your money grows tax-free while it's in the account.

You can withdraw all of it—both contributions and accumulated interest—for tuition and other qualified expenses without paying any tax on the capital gains.

Your modified adjusted gross income (MAGI) must be less than $110,000 to qualify for the full $2,000 annual contribution. The limit doubles if you're married and filing a joint return. Most taxpayers’ MAGIs are the same as their adjusted gross incomes, but you'll want to check with a tax professional to be sure.

The information contained in this article is not tax or legal advice and is not a substitute for such advice. State and federal laws change frequently, and the information in this article may not reflect your own state’s laws or the most recent changes to them. For current tax or legal advice, please consult with an accountant or an attorney.