As we prepare to file our 2013 federal and state tax returns, Iowa parents should be sure to take full advantage of all the tax credits available. One important but under-utilized state tax credit is the Tuition and Textbook Tax Credit (TTC).
This program, last updated in 1998, allows parents (or guardians) of school-aged children to take the cost of a very wide variety of educational expenses off of their Iowa taxes. The credit is 25 percent of the first $1,000 of expenses, or a maximum of $250 per child. Not only are accredited private-school tuition and public/private-school-textbook expenses eligible, but you may deduct the costs of special shoes and equipment for sports (soccer/football/baseball cleats), concert clothing costs, study guides for ACT and SAT tests, AP test and drivers education fees if paid to the school, fees and dues for clubs, field trips, and events, music instrument rental and supplies, and even the rental cost for a prom gown or tuxedo. For the average family with two children in school, who might be struggling to provide all the “extras” they know their children need, the $500 credit is a welcome benefit.
Yet, only one of every three eligible households, or only 121,000 taxpayers with a child older than five and younger than 21, claimed the credit in 2010. Another 220,000 taxpayers with at least one child between 5 and 21 did not claim the TTC. According to the Iowa Department of Revenue analysis, at least 185,000 households with an adjusted gross income of above $30,000 and who “had positive pre-credit tax liability” did not claim the credit they were eligible for. If they received the same amount of credits as those who did claim, this is another $21 million that families could have spent on their needs.
Almost 59 percent of eligible taxpayers in the Western Dubuque School District claimed the credit, but only 8 percent did in the Corning School District (southwestern Iowa). That means almost all Corning families paid more in state taxes than they had to. Almost three-fourths of all non-claiming but eligible families used a tax preparer…so they should have been informed they were eligible and would have lowered their tax bill by using the credit. If you fall into this category, get a new preparer!
Of the 121,000 who did claim the TTC, almost 500 had their tax liability reduced to zero. The total reduction in taxes paid by working Iowa families was almost $15 million. The average credit was $124, but ranged as high as $332 (Rock Valley School District – far northwest corner of the state). Not a fortune, but certainly gas money for a month. Or the electric bill. Or the grocery bill. This is money that these families were able to use for their own wants and needs – not send to Des Moines.
Not only should more families be taking advantage of this tax credit, the Iowa Legislature should take action to revise it upwards. There has been no increase in the allowable amount since 1998 – 16 years ago. In that time the cost of “extras” for our children – from band instrument rentals, to ACT test preparation booklets, to soccer cleats – has increased significantly. At the same time, these extras have become ever more important for academic success, especially for low-income students. While free and reduced-lunch children are exempt from many school fees and community fundraising and donation programs provide for others, many families make the decision to not participate because of the potential added costs.
The TTC is not designed to encourage or substantially subsidize private-school enrollment, but is used by both public and private-school families to help offset the incidental costs of having their children fully participate in school sports and activities. For a family on a tight budget, these “extras” are often the first to be cut, yet provide substantial social and educational benefits.
It would be very simple and have negligible impact on the state budget for the Iowa Legislature to raise the tax credit to 100 percent of the first $1,000 ($42 million in reduced taxes for Iowa families) and allow for carryover into the next tax year. When viewed in light of a $7 billion annual state budget – the highest ever and one with a surplus – $41 million is one-half of 1 percent.
Additionally, because this tax credit is non-refundable, some 500 families at the lowest income levels are unable to make full use of the credit, leaving almost $44,000 in potential credits unused. Almost 300 of these families had incomes below $20,000. These families are to be most commended for supporting their children’s education. They, and all parents, should be able to actually receive a refundable credit, irrespective of their income level.
The Legislature is currently in session, and Legislators are being asked to consider many new programs and new spending ideas. Everyone has their hand out for tax money.
Expanding the TTC for the first time in 16 years – and not collecting and not spending the money of hardworking Iowa families and parents, but leaving it in their pockets for their children’s educational benefit – is a proposal which should receive immediate, bi-partisan support.
In the meantime, every Iowa parent with a child in school should go back through their receipts and bills from 2013 – dig through that nightstand, junk drawer, glove box, and filing cabinet – and claim the TTC on this year’s state taxes. That $21 million will do more good in our pockets than state government’s!
 Bob Rogers and Angela Gullickson, “Iowa’s Tuition and Textbook Tax Credit, Tax Credits Program Evaluation Study,” Iowa Department of Revenue, December 2012, <http://www.iowa.gov/tax/taxlaw/TuitionTextbookEvaluationStudy.pdf> accessed on January 15, 2014.
 Ibid., p. 8.
 Ibid., p. 29.
 Ibid., p. 20.
Deborah D. Thornton is a Research Analyst with Public Interest Institute, Mount Pleasant, Iowa. Contact her at Public.Interest.Institute@LimitedGovernment.org.