Prior to the pandemic, the school year was ushered in by parents stocking up on the school supplies their children would need for the year and teachers asking parents to contribute items for the classroom. Despite donations of everything from glue sticks to hand sanitizer, it is a well-known fact that many teachers dig deep into their own pockets to outfit their classrooms without much promise of a tax break.
For many years, teachers have been able to deduct up to $250 on their tax returns for out-of-pocket expenses associated with their classrooms, due to the impact of COVID-19 causing students to transition to remote learning the State of Ohio has created a refundable tax credit of up to $1,500 for out-of-pocket expenses incurred by parents to aid with the additional costs.
As we begin our second academic year of pandemic learning, many parents are educating their young scholars at home—and realizing just how costly it can be to acquire all the materials needed to provide a well-equipped learning environment.
Fortunately, an Ohio legislator is aware of the financial strain being an educator—at school or at home—can create. Adding to that strain are the money woes that the COVID-19 pandemic has caused for many families. That is why Ohio State Representative Sarah Fowler Archer (R-Ashtabula) has proposed a $1,500 personal income tax credit for educational expenses.
The tax credit, which has been proposed as part of Ohio House Bill 323, would cover such educational costs as “fees for books, supplementary materials, supplies, tutoring, educational field trips, or lessons, including for music, art, or kinesthetic learning.” Kinesthetic, or tactile, learning refers to learning through physical activity, such as when kindergarteners begin to learn math by manipulating small blocks or beads into groups.
By including expenses for a broad spectrum of learning activities and styles in the Ohio tax breaks for teachers and parents, the bill would allow both professional and home educators to receive a credit for purchases of materials or services geared to their learners’ unique needs.
If a second grader is learning about wild animals, their parent or teacher can get a tax credit for purchasing a book about lions, art supplies to paint pictures of tigers, or tickets for a field trip to the local zoo.
Notably, the proposed legislation specifically mentions that the Ohio tax breaks would be available for tutoring expenses. That is important because for many children, the pandemic disrupted their school routine and caused them to fall behind academically. A tax credit for tutoring expenses would make it more affordable for parents to help their children catch up.
While the proposed Ohio tax break is fairly expansive, it does not cover all costs related to education. The tax break is available to parents of qualifying students and to teachers in both public and private schools in Ohio. However, the tax credit would not be able to be claimed for college costs or the expenses of private secondary schools. "Education expenses" does not include expenses or fees for tuition or room and board.
Rep. Archer’s proposal is a tax credit, which is more favorable to taxpayers than a tax deduction. A tax deduction reduces the amount of taxable income a taxpayer has. For example, if a taxpayer had income of $100,000 and a tax deduction of $1,500, that individual’s tax would be calculated based on taxable income of $98,500: the amount of income less the amount of the deduction.
A tax credit, on the other hand, reduces the amount of income tax owed dollar for dollar. If a taxpayer owed $5,000 in income tax and was given a tax credit of $1,500, the amount of income tax they owed would be reduced to $3,500.
The proposed Ohio tax credit is nonrefundable. That means that if parents or educators owe less in income tax than the amount of the credit, they can only claim the tax credit against their actual tax owed, reducing their Ohio income tax to zero. They cannot get a refund for the excess. If a taxpayer has $1500 in expenses eligible for the credit, but has an Ohio income tax bill of only $900, they may only claim a $900 credit.
Remember that as of this writing, the proposed tax break has not yet passed into law; it is still in the House Committee. However, if it passes the Ohio House and Senate and is signed by the governor, the proposed legislation will offer welcome financial relief to parents and educators.
The proposed legislation states that the tax commissioner can request that a qualifying taxpayer claiming the tax credit for educational materials may be asked to furnish proof of their expenses. Failure to provide such documentation may result in a denial of the tax break for parents or teachers. If you anticipate claiming the tax credit for educational expenses, be sure to keep all of your receipts for materials, supplies, lessons, tutoring, and the like. They could become essential in the event of a tax audit.
If you have further questions about the proposed Ohio tax credit for educational expenses, or about other Ohio or federal income tax issues, schedule an appointment today with the accounting and tax preparation professionals at Gudorf Tax Group.