Education Tax Breaks

map August 15, 2023
Does Your State Offer Tax Credits for Private K-12 School Voucher Contributions?

Twenty-one states provide public support to private and religious K-12 schools through school voucher tax credits.
blog June 12, 2023
Illinois Voucher Tax Credits Don’t ‘Invest in Kids,’ They Invest in Inequality

By allowing their school privatization tax credit to expire at the end of the year, Illinois lawmakers can take a meaningful step toward better tax and education policy, and a clear show of support for our nation’s public education system.
brief March 3, 2023
Tax Avoidance Continues to Fuel School Privatization Efforts

Wealthy families are overwhelmingly the ones using school voucher tax credits to opt out of paying for public education and other public services and to redirect their tax dollars to private and religious institutions instead. Most of these credits are being claimed by families with incomes over $200,000.
blog January 11, 2022
School’s In: Tackling College Affordability Through State Tax Codes

Given that a sweeping federal solution to the college affordability crisis does not appear to be on the immediate horizon, it is even more important that states take whatever steps they can to expand college access and affordability. While most of that effort will need to occur on the spending side of the ledger—such as through lowering tuition costs, expanding financial aid, or perhaps even funding free college outright—tax policy also has a role to play.
blog January 29, 2020
ITEP Urges IRS to End SALT Workaround Scheme for Businesses

A new IRS proposal could once again allow wealthy business owners to use state charitable tax credits–including tax credits for donating to support private and religious K-12 schools–to dodge the federal government’s $10,000 cap on state and local tax (SALT) deductions.
January 29, 2020
ITEP Comments and Recommendations on REG-107431-19

Comments regarding the possibility that owners of passthrough businesses may be able to circumvent the $10,000 SALT deduction cap of section 164(b)(6) by recharacterizing the nondeductible portion of their state and local income tax payments as deductible expenses associated with carrying on a trade or business.
blog August 13, 2019
IRS’s SALT Workaround Regulations Should be Strengthened, Not Rejected

Lawmakers are seeking to achieve a backdoor repeal of the $10,000 cap on deductions for state and local taxes paid (SALT) by invalidating recent IRS regulations that cracked down on schemes that let taxpayers dodge the cap. If successful, their efforts would drain tens of billions of dollars from federal coffers each year, with the vast majority of the benefits going to the nation’s wealthiest families.
blog June 11, 2019
New SALT Workaround Regulations Narrow a Tax Shelter, but Work Remains to Close it Entirely

Today the Internal Revenue Service (IRS) released its final regulations cracking down on a tax shelter long favored by private and religious K-12 schools, and more recently adopted by some…
blog June 5, 2019
ITEP Resources on Proposed SALT Workaround Regulations

After states implemented laws that allow taxpayers to circumvent the new $10,000 cap on deductions for state and local taxes (SALT), the IRS has proposed regulations to address this practice. It’s a safe bet the IRS will try to crack down on the newest policies that provide tax credits for donations to public education and other public services, but it remains to be seen whether new regulations will put an end to a longer-running practice of exploiting tax loopholes in some states that allow public money to be funneled to private schools.
blog April 1, 2019
What to Watch for When the IRS Releases Its SALT Workaround Regulations

The Treasury Department and IRS last summer proposed regulations that would make it more difficult for taxpayers to avoid the $10,000 cap on deductions for state and local taxes (SALT). Now, likely days away from the unveiling of the final version of IRS regulations on SALT cap workarounds, Carl Davis recaps the finer points ITEP will be watching for when the regulations become public.
news release February 28, 2019
Education Department Tax Credit Proposal Would Undermine Public Schools

The Education Department today announced a proposed new federal tax credit for so-called school choice. The $5 billion proposal would give those who donate to private school voucher programs a tax credit. Following is a statement by Carl Davis, research director at the Institute on Taxation and Economic Policy.
November 5, 2018
Comments to be delivered during IRS hearing on “Contributions in Exchange for State or Local Tax Credits” (REG-112176-18)

ITEP views this proposal as a sensible improvement, and one that is actually overdue, to the way the charitable deduction is administered. At the end of my remarks I will discuss a few ways that the regulation could be improved. But the core point I want to emphasize is that the general approach taken here, where quid pro quo rules are applied in a broad-based fashion to all significant state and local tax credits, is the correct one.
report October 11, 2018
ITEP Comments and Recommendations on Proposed Section 170 Regulation (REG-112176-18)

The IRS recently proposed a commonsense improvement to the federal charitable deduction. If finalized, the regulation would prevent not just the newest workarounds to the $10,000 deduction for state and local taxes (SALT), but also a longer-running tax shelter abused by wealthy donors to private K-12 school voucher programs. ITEP has submitted official comments outlining four key recommendations related to the proposed regulation.
blog October 2, 2018
Twelve States Offer Profitable Tax Shelter to Private School Voucher Donors; IRS Proposal Could Fix This

A proposed IRS regulation would eliminate a tax shelter for private school donors in twelve states by making a commonsense improvement to the federal tax deduction for charitable gifts. For years, some affluent taxpayers who donate to private K-12 school voucher programs have managed to turn a profit by claiming state tax credits and federal tax deductions that, taken together, are worth more than the amount donated. This practice could soon come to an end under the IRS’s broader goal of ending misuse of the charitable deduction by people seeking to dodge the federal SALT deduction cap.
blog September 20, 2018
IRS Reopens Tax Loophole Sought by Sen. Toomey, but it Won’t Work in Pennsylvania

A recent IRS clarification, which appears to have been a pet project of Sen. Pat Toomey (R-PA), has been widely interpreted as reopening a loophole the agency had proposed closing just weeks earlier. But while the announcement creates an opening for aggressive tax avoidance in many states, Pennsylvania, ironically enough, isn’t one of them.
report June 27, 2018
The Other SALT Cap Workaround: Accountants Steer Clients Toward Private K-12 Voucher Tax Credits

On May 23, 2018, the IRS and Treasury Department announced that they “intend to propose regulations addressing the federal income tax treatment of certain payments made by taxpayers for which…
blog May 24, 2018
As IRS Prepares to Act, Red-State Taxpayers Profit from Use of SALT “Workaround Credits”

A new ITEP report explains the close parallels between the new workaround credits and existing state tax credits, including those benefiting private schools. The report comes the same day that the IRS and Treasury Department announced they would seek new regulations related to these tax credits. It notes that the SALT workarounds are emblematic of a broader weakness with the federal charitable deduction. And it cautions regulators to avoid a “narrow fix” that will only address the newest SALT workarounds (which, so far, have only been enacted in blue states) without also addressing other abuses of the deduction, which have long been employed by red states.
report May 23, 2018
SALT/Charitable Workaround Credits Require a Broad Fix, Not a Narrow One

The federal Tax Cuts and Jobs Act (TCJA) enacted last year temporarily capped deductions for state and local tax (SALT) payments at $10,000 per year. The cap, which expires at the end of 2025, disproportionately impacts taxpayers in higher-income states and in states and localities more reliant on income or property taxes, as opposed to sales taxes. Increasingly, lawmakers in those states who feel their residents were unfairly targeted by the federal law are debating and enacting tax credits that can help some of their residents circumvent this cap.
blog May 9, 2018
New Tax Subsidy for Private K-12 Tuition in Massachusetts Creates a Host of Problems

Last year’s federal tax cut bill changed 529 college savings accounts in a major way, expanding them so that they can be used as tax shelters by higher-income families who…
blog February 23, 2018
Why the Minute Federal 529 Provision Has Huge Consequences for States

When Republican leaders rushed through an overhaul to the federal tax code over a seven-week legislative period, they failed to acknowledge that many provisions in their bill would have negative consequences for states. One such provision of the Tax Cuts and Jobs Act that undermines state laws is the expansion of federal tax breaks that now allows taxpayers to use 529 savings plans to pay for private K-12 education.
brief February 23, 2018
Preventing State Tax Subsidies for Private K-12 Education in the Wake of the New Federal 529 Law

This policy brief explains the federal and various state-level breaks for 529 plans and explores the potential impact that the change in federal treatment of 529 plans will have on state revenues.
blog December 14, 2017
Private Schools Donors Likely to Win Big from Expanded Loophole in Tax Bill

For years, private schools around the country have been making an unusual pitch to prospective donors: give us your money, and you’ll get so many state and federal tax breaks in return that you may end up turning a profit. Under tax legislation being considered in Congress right now, that pitch is about to become even more persuasive.
report December 14, 2017
Tax Bill Would Increase Abuse of Charitable Giving Deduction, with Private K-12 Schools as the Biggest Winners

In its rush to pass a major rewrite of the tax code before year’s end, Congress appears likely to enact a “tax reform” that creates, or expands, a significant number of tax loopholes.[1] One such loophole would reward some of the nation’s wealthiest individuals with a strategy for padding their own bank accounts by “donating” to support private K-12 schools. While a similar loophole exists under current law, its size and scope would be dramatically expanded by the legislation working its way through Congress.[2]
blog August 30, 2017
Private School Voucher Credits Offer a Windfall to Wealthy Investors in Some States

State lawmakers who want to send public dollars to private schools have devised a shrewd tactic for getting around political and constitutional obstacles that make it difficult to do so.…
blog August 9, 2017
It’s a Fact: Voucher Tax Credits Offer Profits for Some “Donors”

In nine states, tax rewards gained by donating to fund private K-12 vouchers are so oversized that “donors” can turn a profit. This is the shocking but true finding of a pair of studies released by ITEP over the last year.