Deducting Private School Tuition in 2020: Is It Possible?

Parents and students have some options for tax relief when it comes to tuition at private schools, but there is no direct tax deduction or exemption for private school tuition.

After significant changes to tax law in 2018, a rumor began to spread that one of the changes included a private school tuition tax deduction. If this were the case, parents would be allowed to send their children of all ages to private schools and deduct the cost from their taxes, essentially paying the federal government less.

While there are some ways to manage the cost of private school — whether it is K-12 or post-secondary education — tuition is not directly tax-deductible.

Ways to Pay for Your Child’s Private School Tuition

The Internal Revenue Service (IRS) does not allow anyone to deduct the cost of private school to lower your federal income tax burden.

In fact, the recent changes to tax law passed in 2018 removed one possible private school tuition tax deduction— the Tuition and Fees Deduction ended in the 2017 tax year. This rule allowed college, university, and private school students to deduct the cost of their post-secondary education up to $4,000.

Some states offer tax deductions for businesses that provide individuals scholarships for private school tuition. If you do not live in one of these states or you want a federal tax deduction, there are numerous ways you can take your child’s school costs off your taxes, including the following:

1. Characterize tuition as a childcare expense. The cost of nursery school, preschool, or similar programs for children under kindergarten age can be deducted on federal income taxes as part of the childcare tax credit.
   
   The IRS considers grades from kindergarten and above to be educational rather than childcare. While private school tuition for children in kindergarten or above is not deductible under the childcare tax credit, before- and after-school programs qualify, regardless of grade level.
   
2. Know that special needs private school tuition is exempt. If your child has a note from a pediatric physician or other qualified medical professional stating that they require a specific type of educational approach due to a learning disability or other reason, and the only way for you to access this care is through private school, the IRS allows you to take private school tuition as a tax deduction. In essence, it is a medical expense rather than a personal preference.
   
   You can also deduct the cost of special tutoring or training your child requires in addition to tuition at a special needs school.
   
   To claim this tax deduction, you must itemize expenses rather than claiming a standard deduction. These would need to qualify as specific medical expenses and reduce your adjusted gross income by 10% as of 2018.
   
3. Move to a state that allows private school tuition tax deductions. Several states offer tax deductions to organizations that provide financial help in the form of scholarships for students attending private schools, K-12 and higher. These states include the following:
   
   • Alabama
   • Arizona
   • Florida
   • Georgia
   • Indiana
   • Iowa
   • Kansas
   • Louisiana
   • New Hampshire 
   • Oklahoma
   • Pennsylvania
   • Rhode Island
   • South Carolina
   • Virginia

While these states still do not allow a tuition deduction as a personal expense, they do provide better access to financial help in the form of scholarships. This may not lower your tax burden, but it can make private school tuition slightly more affordable.

Post-Secondary Private School Tuition Tax Deduction Through Loan Interest

If you are a parent with a dependent undergraduate student attending a private college or university and took out a loan on their behalf,  you could claim a tax deduction on their student loan interest. For example, if you took out a Direct PLUS Loan on behalf of your dependent, college-aged child, interest begins to collect on this loan as soon as the money is disbursed. You would also be required to start making monthly payments once your child enters their first semester.

Using the student loan interest deduction, you can take the interest you have paid as a tax deduction. To do this:

• You must make less than $80,000 per year as a single tax filer or less than $160,000 for a couple married and filing jointly.
• You must have paid at least $600 in interest on student loans for the past year.
• Qualified expenses include tuition but do not include housing, food, or transportation.
• You can receive a maximum annual credit of $2,500 per eligible student.

You can also use the American Opportunity Tax Credit (AOTC) or the Lifetime Learning Credit (LLC) to manage the cost of your child’s private college or university.

Private school tuition is not a direct tax deduction, but it could be indirectly managed with the help of savings accounts. These options can also help you save money for your child’s college education. 

Savings Accounts to Pay for Private School Tuition

If you want your child to attend a private school, you may want to start a savings account to fund their education. There are two savings accounts that parents use for this purpose, both of which have some tax benefits associated with them.

• Coverdell Education Savings Account (ESA): This type of account allows you to put money aside for your child’s education without paying taxes on the earnings. Funds taken out of an ESA must go toward qualified educational expenses like tuition, textbooks, and supplies as required by your child’s private school program.
  
  Contributions to an ESA are capped at $2,000 per year regardless of how many beneficiaries contribute to the account. For example, if a close relative donates $1,000 to the ESA, you can deposit another $1,000 but no more. You can contribute to this account until your child turns 18 years old.
  
• 529 education savings plan: Money from this savings account is also designed to go toward K–12 education. Up to $10,000 can be withdrawn tax-free from a 529 account every year to pay for your child’s educational expenses.
  
  Like the ESA, money from a 529 can only go toward qualified education expenses, including tuition. Changes to tax law in 2018 restricted how much you can withdraw and how much you can deposit without incurring taxes.

While there is no direct private school tuition tax deduction through the federal government, there are options to help parents afford private education, regardless of grade level.