Tuesday, February 3, 2015

THE WISCONSIN TAX DEDUCTION FOR PRIVATE AND RELIGIOUS TUITION EXPENSES

What is the tax deduction for tuition expenses?
• The state budget bill (2013 Wisconsin Act 20) established a tuition tax deduction (see Wis.
Stat. s. 71.05(6)(b)49), which begins in the 2014 tax year. When filing in 2015, taxpayers
may deduct the private and religious school tuition expenses they have paid, up to $4,000
for each dependent child in kindergarten through eighth grade and up to $10,000 for each
dependent child in grades nine through twelve. The tuition expenses must have been
paid on or after January 1, 2014.

How much will the deduction benefit families?
• The average Wisconsin family will see their taxes cut around $240 per primary school
child and around $600 per high school student. However, because this is a deduction and
not a tax credit, the amount that any one family or individual will save is partly
dependent on income, how they file, and the resulting tax liability.

Who is eligible to claim the deduction?
• Anyone who pays tuition expenses at a private school is eligible, but the deduction is
most beneficial to people whose tuition expenses are within the allowable deduction per
child and have incomes that incur at least some tax liability.

Can I deduct all tuition if my child receives a scholarship or financial aid?
• No, taxpayers can only claim those expenses that they have actually paid.

What if my student is going from elementary or middle school to high school?
• If a student is in both elementary and secondary school in the same taxable year (i.e. a
student goes from eighth to ninth grade), the taxpayer may claim tuition expenses that
were paid for only one grade in that taxable year. Therefore, the family must decide
whether to claim the tuition paid for eighth grade in that taxable year (up to $4,000), or
the tuition paid for ninth grade (up to $10,000).

Do you have examples of how the deduction works?
(Assume all costs are tuition expenses paid between January 1 and December 31, 2014.)
• A couple makes $60,000 in income and spends $2,500 on tuition for their elementary
school student in 2014. When the family files their taxes in 2015, their tax obligation is
reduced from $3,762 to $3,605, a savings of $157.

• A family with two high school students makes $90,000 in income and spends $7,500 per student on tuition in 2014 (for a total of $15,000). With the deduction, that family's taxes are reduced from $5,643 to $4,703, a savings of $940.

 • A mother makes $46,000 and sends her two children to a Catholic elementary school that charges $2,000 per student for tuition. Her taxes before the deduction are $2,884. After the $4,000 deduction, her taxes fall to $2,633, saving her $251.

 • A family makes $120,000 and has three students in Catholic schools - one in elementary school, one in middle school, and one that finished eighth grade and started high school. Tuition for the youngest student was $3,000, and for the middle school student, $4,100. For the student who started high school, tuition was $2,000 for the second semester of eighth grade and $3,500 for the first semester of high school. When filing their taxes in 2015, the family may claim a deduction of $10,500, which is the full tuition amount paid for youngest child, the maximum tuition payment deduction allowed for middle school child ($4,000), plus the semester of high school tuition for the eldest child. With the deduction, the family's tax obligation goes from $7,524 to $6,866, for a savings of $658. Can families claim the deduction for tuition paid at all private schools?

 • The deduction applies to tuition expenses paid at an institution that meets the definition of a private school under Wisconsin Statutes s. 118.165.

What does a taxpayer need to do to claim the deduction?

• Families need to make certain that the school their child attends meets the basic definition of a private school, and they should save payment records (receipts, etc.) as supporting documentation for their tax records.