Discussion of the Illinois Education Tax Credit
sponsored by the
Stepnowski Law Offices
In the last article, we described deducting medical expenses and
credits.
This article discusses the Illinois education credits, especially for
home-schooled children.
These articles is geared toward helping parents with
children with disabilities understand the tax laws.
Please do not use
this article as definitive advice, as your situation
may vary. Consult your attorney or tax professional.
Nothing on this page creates an attorney-client relationship.
In general:
“Qualified education
expenses” shall mean amounts incurred on
behalf
of a qualifying pupil in excess of $250 for tuition, book fees, and lab
fees at the school in which the qualifying pupil is enrolled during the
regular school
year Amounts incurred for tuition, book fees and lab fees
by a family that is the custodian of more than one qualifying pupil may
aggregate
all tuition, book fees and lab fees incurred by the family in arriving
at qualified
education expenses eligible for the credit.
Page Contents:
General
Information: Explanation of whether various expenditures may qualify
The Illinois Department of Revenue has recently
issued some letters which have created confusion as to whether the cost
of books can be included in the calculation of the credit. The
IDoR has recently
issued this
letter, which is interpretive only and not binding precedent:
IT 05-0018-GIL 04/15/2005
CREDITS –
EDUCATION
http://www.revenue.state.il.us/legalinformation/letter/rulings/it/2005/ig050018.pdf#search='100.2165%20Illinois%20education'
or IL-Tax-Credit-Letter.pdf
"For example, you ask
whether books
from a private party, or used books from E-bay would qualify.
The Table explains that only book rentals
will qualify for the credit,
not actual book purchases.
Thus, purchasing books from private parties or from E-bay will not
qualify for the Education Expense Credit.
IL-Tax-Credit-Letter21.pdf
http://www.revenue.state.il.us/legalinformation/letter/rulings/it/2005/ig050021.pdf#search='100.2165%20Illinois%20education'
On page 15 of the IL-1040
Instructions
is the Education Expense Table that guides you through the
requirements needed to qualify for this credit. For example, you ask
whether books purchased for
use as a curriculum qualify for the credit. The Table explains that
only book rentals will
qualify, not
actual book purchases. You also question whether materials for science
experiments and laboratory
equipment qualify. If the materials for a science experiment and
equipment used in a laboratory are
for a class that results in a credit toward completion of a qualifying
school’s education program and
are substantially consumed by the activities of the lab, the expenses
may qualify for the credit.
Finally, you ask whether expenses for field
trips qualify. According to
the specific language of the
statute, qualified education expenses relate only to tuition costs,
book fees and lab fees. Field trips
do not fall under any of these three categories.
However, the actual regulation states:
http://www.revenue.state.il.us/publications/bulletins/2000/Fy2000-19.pdf#search='Informational%20Bulletin%20FY%20200019'
Any amount paid for the
purchase of an
item that is not substantially
consumed
by the required assignments and activities of a lab course and that
will remain
the personal property of the student, parent or legal guardian at the
end of
the school year, is not considered a qualified education expense ( e.g.,
payments made toward the purchase of a band instrument).
The statute (the law) itself does not say that book
fees
are limited to
rentals only. The example given in the actual instructions
mentioned by the DoR refers to
books that were used for book reports; these books have value other
than for school work. A case could be made that depreciable books
should be included for
the credit. The statute is the the law written by the
legislature; the instructions are not the law, but only and
interpretation, and do not exlude depreciable books. Moreover,
the regulation allows the credit for books that are consumed, such as
workbooks.
The statute reads only: "Qualified education expense" means the
amount incurred on behalf of a qualifying pupil in excess of $250 for
tuition, book fees, and lab fees at the school in which the pupil is
enrolled during the regular school year. The intent of the
statute is to allow a credit for the use of books, but by using the
"fees", to limit that credit to prevent a credit for permanent
gains. To disallow all purchases of books would violate the
intent of the statute. Still, there is no guarantee on how the
deduction will be treated.
(This is an interpretation only. Do not accept
this as legal advice. Consult the official Illinois materials.)
What schools qualify as Illinois
schools?
Public, Private and Homeschooling expenses all count toward the credit.
"For the purpose of the education expense
credit, any
public
or nonpublic elementary or secondary school in Illinois that satisfies
the requirement of Section 26-1 of the School Code and, if required, is
in compliance with Title VI of the Civil Rights Act of 1964 qualifies
as
an Illinois school. Private schools providing educational instruction
in
the home that satisfy the requirements of Section 26-1 of the School
Code
also qualify as Illinois schools."
Ill. Dept Revenue Bulletin 2000-19.
This bulletin is based on the regulation:
“School”, for purposes of the
education
expense credit,
means any public or nonpublic elementary or secondary school in
Illinois.... [N]othing shall be construed to require a child to attend
any particular
public or nonpublic school in order to qualify for the education
expense credit
(IITA Section 201(m)). Schools that are not required to be in
compliance
with the Title VI of the Civil Rights Act of 1964 but attendance at
which meets the
compulsory education requirements of Section 26-1 of the School Code
are included
within the meaning of “school” for purposes of the education expense
credit. Private schools providing educational instruction
in the home,
attendance
at which meets the compulsory education requirements of Section
26-1 of the
School Code, are included within the meaning of “school” for
purposes of
the education expense credit.
If your program otherwise meets the terms of section 26-1, it qualifies
for the creidt.
The Education Tax Credit is Constitutional
In Toney v. Bower (4th Dist, Feb. 8, 2001), the Illinois
Appellate
Court held that the Education Tax Credit was constitutional and did not
violate the establishment of religion clause of the Illinois and United
States Constitutions.
"All parents of public or private school
students who incur
at least $250 of qualified education expenses are eligible to claim the
Credit against their income tax liability. To the extent that certain
parents
do not benefit from the Credit, it is because they incur lower costs in
educating their children than do parents who meet the statute's
requirements.
By creating the Credit, the legislature has recognized that parents who
send their children to private schools often do so at considerable
expense
to themselves and that they provide a benefit to the State treasury by
relieving the State and local taxpayers of the expense of educating
their
children. It is an appropriate legislative goal to assist those schools
in remaining financially viable. Thus, we conclude that the Credit does
not contravene section 2 of article IX of the Illinois Constitution. "
The Fifth District agreed with Toney in Griffith v. Bower (2001).
However, the Toney court also stated:
We conclude that the above cases support
the
constitutionality
of the Credit. We note that plaintiffs challenged the constitutionality
of the statute on its face. The effect of the statute as applied is
unknown
at this time. Therefore, we reject, as did the Supreme Court in Mueller,
463 U.S. at 401, 77 L. Ed. 2d at 732, 103 S. Ct. at 3070, plaintiffs'
attempt
to use statistical evidence to show that the primary benefit of the
Credit
will inure to parents who send their children to sectarian schools.
The meaning of this statement is not clear. It could be
interpreted
as allowing a challenge to the Tax Credit sometime in the future if its
opponents bring substantial evidence of disparate effect.
Opponents
of the credit, teacher-union-funded school teachers, brought the Griffith
and Toney lawsuits in a county lacking nonsectarian private
schools
to demonstrate that in that county, the effect of the credit would only
help sectarian schools. The court held the time was too early to
determine the effect of the Tax Credit. Defenders of the Tax
Credit
used the benefit to homeschoolers to counter the argument that
the
only private schools in the county were run by churches. Thus,
keeping
home schools as a legal alternative is in the benefit of all schools.
----------
Case could boost funding for private schools
The US Supreme Court considers whether federal judges can rule on a
parochial-school tax credit.
By Warren Richey | Staff writer of The Christian Science
Monitor
WASHINGTON - Tuesday the US
Supreme Court takes
up a case that could
provide the most significant boost to those supporting public funding
for
parochial schools since the high court's school-voucher decision two
years
ago.
The
central issue in Hibbs v. Winn isn't the constitutionality of a
tax-credit
system in Arizona that helps fund parochial school tuition.
Rather,
the issue is more technical: whether the federal courts can review
determinations
already made by state judges about whether such tax-credit systems
violate
the separation of church and state.
from the January 20, 2004 edition: http://www.csmonitor.com/2004/0120/p02s01-usju.htm
Text of the Illinois Income Tax
Act (
35 ILCS 5/
201(m)
):
(m) Education
expense
credit.
Beginning with tax years ending
after December 31, 1999, a taxpayer
who is the
custodian of one or more
qualifying pupils shall be allowed a
credit against
the
tax imposed by
subsections (a) and (b) of this Section
for qualified
education expenses
incurred on behalf of the
qualifying
pupils.
The credit shall be equal
to 25% of qualified education expenses,
but in no
event
may the total
credit under this subsection
claimed by a
family that is the custodian
of qualifying pupils exceed $500.
In no event
shall
a credit under this
subsection reduce the taxpayer's
liability under this
Act to less than
zero. This subsection
is exempt
from
the provisions of Section 250 of
this Act.
For purposes of this
subsection:
"Qualifying pupils"
means
individuals
who (i) are residents of the
State of Illinois,
(ii)
are
under the age of 21 at the close of the
school year for which a credit is sought,
and
(iii)
during the school
year for which a credit
is sought
were
full-time pupils enrolled in a
kindergarten through twelfth grade
education program
at any school, as
defined in this subsection.
"Qualified education
expense"
means
the amount incurred on behalf of
a qualifying pupil
in excess
of $250 for tuition, book fees, and lab
fees at the school in which the pupil
is
enrolled
during the regular
school year.
"School"
means
any
public or nonpublic elementary or secondary
school in Illinois that is in compliance
with
Title
VI of the Civil
Rights Act of 1964 and attendance at
which satisfies
the requirements of
Section 26-1 of the School Code,
except that
nothing
shall be construed
to require a child to attend any
particular public
or
nonpublic school
to qualify for the credit under this
Section.
"Custodian"
means,
with
respect to qualifying pupils, an Illinois
resident who is a parent, the parents, a
legal
guardian,
or the legal
guardians of the qualifying pupils.
Illinois Department of Revenue
Regulations
Home schools qualify for tuition tax credit.
Title 86 Part 100 Section 100.2165 Education Expense Credit (IITA 201
(m))
3) “School”, for purposes of the education
expense credit,
means any public or
nonpublic elementary or secondary school in Illinois that is in
compliance
with
Title VI of the Civil Rights Act of 1964 and attendance at which
satisfies
the
requirements of Section 26-1 of the School Code [105 ILCS 5/26-1],
except that
nothing shall be construed to require a child to attend any particular
public or
nonpublic school in order to qualify for the education expense credit
(IITA
Section 201(m)). Schools that are not required to be in compliance
with the Title
VI of the Civil Rights Act of 1964 but attendance at which meets the
compulsory
education requirements of Section 26-1 of the School Code are included
within
the meaning of “school” for purposes of the education expense credit. Private
schools providing educational instruction in the home,
attendance
at which
meets the compulsory education requirements of Section
26-1 of the
School
Code, are included within the meaning of “school” for
purposes of
the education
expense credit.
4) “Qualified education expenses” shall mean amounts
incurred on
behalf
of a
qualifying pupil in excess of $250 for tuition, book fees, and lab
fees at the school
in which the qualifying pupil is enrolled during the regular school
year (IITA
Section 201(m)). Amounts incurred for tuition, book fees and lab fees
by a family
that is the custodian of more than one qualifying pupil may aggregate
all tuition,
book fees and lab fees incurred by the family in arriving at qualified
education
expenses eligible for the credit.
A) Tuition is the amount paid to a school as
a condition
of
enrollment for a
quarter, semester or year term in a kindergarten through twelfth grade
education program of the school. Enrollment in an education program
shall mean admission to the full and regular schedule of classroom
instruction of the school during the designated period. Tuition also
includes amounts paid as a condition of enrollment on behalf of a
school
to cover costs of implementing and administering an education program.
B) Book fees are amounts paid for the use of books that are essential
to a
qualifying pupil’s participation in the education program of the
school.
A
book is essential when the school or an instructor of the school
requires
its use by the qualifying pupil in order to participate in and complete
a
course of the education program.
C) Lab fees are amounts paid for the use of supplies, equipment,
materials
or instruments that are essential to a qualifying pupil’s participation
in a
lab course of the school’s education program. Supplies, equipment,
materials or instruments are essential when the school or an instructor
of
the school requires their use by the qualifying pupil in order to
participate
in and complete a lab course of the education program. Lab courses
include those courses that, in addition to classroom instruction by
a
teacher, provide an environment of organized activity involving
observation, experimentation or practice in a course of study. Such
courses of study include those courses with a scientific, musical,
artistic,
technical or language skill content. Lab fees may be in the nature
of a
rental fee for supplies, equipment, materials or instruments that are
used
in the lab course. Fees incurred for the purchase of supplies,
equipment,
materials or instruments used in a lab course and which are
substantially
consumed by the assignments and activities of the lab are also
considered qualifying lab fees.
Any amount paid for the purchase of items that would be considered
qualified
education expenses but for the fact that the items are not
substantially
consumed
during the school year and will remain the tangible personal property
of a qualifying
pupil or a custodian at the conclusion of the school year shall not
be considered
qualified education expenses. For purposes of this Section, an item
is substantially
consumed when, during the school year, the item is used to such an
extent that its fair
market value has been reduced to a de minimis amount.
IRS
Circular 230 Disclosure
To ensure compliance with requirements imposed by the IRS, we inform
you that any U.S. federal tax advice contained in this communication
(including any attachments) is not intended or written to be used, and
cannot be used, for the purpose of (i) avoiding penalties under the
Internal Revenue Code or (ii) promoting, marketing or recommending to
another party any transaction or matter addressed herein.
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