Q: We recently started our son in private elementary school in the fifth grade. Do you know of any federal/state tax income tax benefit on the monthly tuition we are paying? Any way we can route the payments to get federal/state income tax benefits? I heard the term "School Voucher" but could not find much detail on it. Appreciate your thoughts or guidance on the subject. Thanks, Shevtank, San Diego, CA
A: Most of the education-related tax benefits are targeted to college tuition and expenses. There is no deduction for elementary school tuition. There are no tax credits for elementary school tuition payments. There are, however, two potential tax benefits available for the payment of elementary school tuition.
There is a possible exclusion from income for earnings from a Coverdell Education Savings Account (CESA) to the extent that they are used to pay qualifying education expenses. Qualifying education expenses include elementary school tuition through 2012 under current law. Up to $2,000 can be contributed to a CESA per year. The contribution amount is subject to a phase-out if your modified adjusted gross income exceeds $95,000, becoming $0 at $110,000 ($190,000 and $220,000 if you are married filing a joint return). To the extent that distributions include earnings on funds contributed to the account, and the distributions are used to pay qualifying education expenses, the earnings are excludable from taxable income. This provision is currently scheduled to sunset December 31, 2012 unless Congress acts to extend it.
The other potential tax benefit applies under very limited conditions for students that have a mental or physical handicap and attend a special school to treat that handicap. If the principal reason for attending the school is to alleviater the mental or physical handicap, the cost of the tuition may be deductible as a medical expense. Medical expenses are subject to a 7.5% of adjusted gross income floor (10% starting in 2013). You will need proper documentation of the physical or mental handicap as well as proof of the payment of the tuition. Again, this deduction is available only under very limited circumstances.
I am not aware of any "school voucher" programs for federal tax purposes. I have seen people try to deduct tuition paid to private schools as charitable contributions. This approach has been successfully challenged by the IRS and I do not recommend it.