Maybe you've heard that your neighbor claims a tax credit for what they spend on their child's after-school program. Maybe your cousin gets all sorts of tax breaks because their older teen is enrolled at a 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.
- Most federal education tax breaks are reserved for post-secondary learning or enrollment after high school.
- Some parents can claim an itemized deduction for tuition costs for special-needs children for grades kindergarten through 12 if it’s established that the school is medically or therapeutically required.
- Paying for before- and after-school care costs can qualify you for the Child and Dependent Care Tax Credit if your child attends because you (and your spouse, if you’re married) have to work or you’re looking for work.
- Funds from some tax-advantaged tuition savings plans can be spent on K-12 education costs.
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 they're paid directly by parents.
But educational expenses are tax-deductible at the federal level for post-secondary schooling and other types of costs. These would include community colleges, universities, and trade or vocational schools, or generally any accredited post-secondary education program.
Most education costs after high school can qualify for some kind of tax break. Grade-school and high-school tuition and expenses don't count, but there are some exceptions to this rule.
Private School Costs for Children with Special Needs
You can deduct private K-12 tuition for children with special needs if such schooling is medically or therapeutically required. First, a doctor must certify that special education is necessary. Second, you'll have to itemize your taxes to claim this deduction. That means forgoing the standard deduction. It was $12,550 for single individuals and $25,100 for married couples filing jointly in 2021. These figures increase to $12,950 for singles and $25,900 for married couples filing jointly for the 2022 tax year.
Special education costs are accounted for during tax time as an itemized deduction for medical expenses. However, you can only deduct the portion of the total of your medical expenses that exceeds 7.5% of your adjusted gross income (AGI) as of tax year 2021, the return you'll file in 2022.
The AGI threshold for deducting medical expenses changed with the Tax Cuts and Jobs Act (TCJA) in 2018. The law 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 was then made permanent in December 2020.
Before-School and After-School Care Costs
You may be able to claim a tax break for the costs of child care either before or after school. This deduction falls under the umbrella of the Child and Dependent Care Tax Credit (CDCTC).
Whether you qualify for the credit depends on whether you have to place your child in a before-school or after-school program so you can work or look for work. Your spouse must also work or be looking for work if you're married.
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 their parent is unavailable.
The credit applies to both private and public school programs, but you must separate out 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. It's calculated on up to $3,000 in total work-related child care expenses for one child, or $6,000 for two or more children. You can claim a percentage of these costs as a tax credit if you spend $1,500 for the after-school care program and $500 for summer camp so you can work or look for work.
The amount of the percentage depends on your AGI. It tops out at 35% for those with AGIs of $15,000 or less. The least you'd be able to deduct is 20%. This would apply to anyone with an AGI of $43,000 or more.
The American Rescue Plan Act temporarily changed the Child and Dependent Care Tax Credit for the 2021 tax year. This law made the credit refundable. It increased the caps to $8,000 for one qualifying individual and to $16,000 for two or more children. It increased the credit rate for low- and moderate-income taxpayers by up to 50% but eliminated it for the highest-income taxpayers.
529 Savings Plans Can Be Used for K-12 Education
A 529 plan, also called a "qualified tuition plan," works similarly to an IRA but for educational purposes. These savings plans have long provided help with private post-secondary school expenses. They could only be used to pay for secondary education at one point, 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 529 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, but contributors should be aware of 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, but it increases to $16,000 for the 2022 tax year. Anyone who contributes more than this exclusion amount 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 over the first $15,000, or over $16,000 for tax year 2022.
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 per 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 as of tax year 2021. 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.
Frequently Asked Questions (FAQs)
How much does private school cost?
Private school tuition varies a great deal by school and location. According to the Education Data Initiative, the average cost of annual tuition for private K-12 schools in the U.S. was $12,350 in 2021.
How do I pay for private school?
There are a number of financial aid options available for private K-12 schools. Many schools offer assistance based on financial need. Religious-based private schools often offer discounts for members of their faith community. There are usually scholarships available from a variety of community organizations. Many aren't merit-based. You can also look into education loans or personal loans to pay for your child's schooling.