As we file our 2013 federal and state tax returns, Iowa parents should 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). The TTC allows parents 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" 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, at least 185,000 households with an adjusted gross income above $30,000 and who "had positive pre-credit tax liability" did not claim the credit. If they received the same amount of credits, this is another $21 million that families could have spent themselves.
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 preparerso 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 as a result of the TTC was almost $15 million. The average credit was $124, but ranged as high as $332 (Rock Valley School District). Not a fortune, but certainly gas money for a month. Or the electric bill. Or the grocery bill.
Not only should more families take advantage of this tax credit, the Legislature should revise it upwards. There has been no increase since 1998 16 years ago. In that time the cost of "extras" for our children from band instrument rentals, to ACT test preparation books, to soccer cleats has increased significantly. For a family on a tight budget, these "extras" are often the first to be cut, yet provide ever more important social and educational benefits.
It would have negligible impact on the state budget if the Legislature raised 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 this is one-half of 1 percent. Expanding the TTC is a proposal which should receive immediate, bi-partisan support.
In the meantime, go back through your receipts from 2013 dig through that nightstand, junk drawer, and glove box and claim the TTC!
The views expressed in this column are those of the author and not necessarily those of the Public Interest Institute. They are brought to you in the interest of a better informed citizenry.
Deborah D. Thornton is a research analyst at the Public Interest Institute in Mount Pleasant.