Revised February 2009
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11. Iowa—Education Tax Credits
Program type: Tax credits to parents for education-related expenses
Description: Parents of students in qualified schools may receive Iowa tax credits for tuition and textbook expenses. Under this program, "tuition" includes any expenses relating to the teaching of subjects commonly taught in Iowa public schools, and "textbooks" includes all books and instructional materials used in the teaching of such subjects, and also fees, books, and materials for extracurricular activities. Expenses related to the teaching of religious tenets, doctrine, and worship do not qualify for a credit. A qualified school is any public or nonprofit private school in Iowa that is accredited in accordance with Iowa law (Iowa Code §256.11).
Amount of assistance: The amount of credit allowed is 25 percent of the amount expended up to $1,000 per dependent (i.e., up to $250 per student).
Number of participants: In the 2006 taxable year, 191,600 taxpayers claimed credits worth an average of $79.
Authorizing statute: Iowa Code §422.12
Legislative history: The tax credit program was signed into law in 1987 and initially allowed a 5 percent credit only to families with incomes under $40,000. In 1996, the credit was raised to 10 percent and the household income limitation was removed. In 1998, the credit percentage was raised to its current level of 25 percent, and there is no longer an income limit on eligibility.
Judicial history: In 1992, a federal district court found that the Iowa tax credit was constitutional in Luthens v. Blair. A group of Iowa taxpayers brought suit in federal district court claiming that the income tax law violated the Establishment Clause of the First Amendment of the U.S. Constitution that prohibits Congress and the states, through the Fourteenth Amendment, from making laws establishing religion. In Luthens v. Blair the court determined the case was substantially similar to Mueller v. Allen, in which the U.S. Supreme Court found in 1983 that Minnesota's education tax deduction statute did not violate the Establishment Clause of the First Amendment.
For more information, see: http://www.state.ia.us/tax/1040EI/Line/07Line48.html.
12. Iowa—School Tuition Organization Tax Credit
Program type: Tax credits for contributions to scholarship organizations
Description: Taxpayers that voluntarily contribute to qualified "school tuition organizations" (STOs) are eligible to receive an individual income tax credit. The amount of income tax credit is 65 percent of the value of the contribution. The statewide aggregate amount of tax credit allowed is $2.5 million in 2006-07, $5 million in 2007-08, and $7.5 million in 2008 and beyond.
A qualified STO must be a private nonprofit organization that supports private school scholarships. Students may be eligible for these scholarships if their family's annual income does not exceed an amount equal to three times the most recently published federal poverty guidelines. Contributing taxpayers may not identify particular students as scholarship recipients. Participating schools must be state accredited and comply with federal and state civil rights laws.
Amount of assistance: The scholarship amount is established by the STOs individually.
Number of participants: For the 2007-08 school year, 10 scholarship organizations awarded 7,257 scholarships to students attending private schools.
Authorizing statute: Iowa Code §422.11S
Legislative history: On June 2, 2006, the school tuition organization tax credit was signed into law, creating a new tax credit program to individuals for contributions to scholarship organizations. The program took effect retroactively on Jan. 1, 2006.
Judicial history: No legal suits have been filed regarding the program.
For more information, see: http://www.state.ia.us/tax/1040EI/Line/07Line53.html.