As students from elementary age to grad level across the country head back to school this month, parents are grappling with how to pay tuition, buy school supplies, and fit in all of those extracurricular activities. It can be difficult to sort it all out, and in an era where everyone seems to have an opinion about school (and paying for it), it can be even more difficult to separate fact from fiction. In my Back To School Myths series, I’ll help you sort out truths from myths when it comes to school and taxes.
Today’s myth: Federal tax breaks exist for homeschooling.
Homeschooling expenses are not deductible. Like most myths, this one has some roots in reality. There is a tax break available for teachers and other educators on the federal income tax return.
Like the student loan interest deduction, the educator expenses deduction is an “above-the-line” deduction, which means that you can take the deduction even if you don’t itemize. And also like the student loan interest deduction, the educator expenses deduction came under fire as part of the tax reform bill. Specifically, the House proposal would have nixed the deduction, but under the Senate proposal, the deduction would not only have stuck around but doubled to $500. In the final version of the Tax Cuts and Jobs Act of 2017 (TCJA), the deduction for educator expenses remained as is.
Here’s how the educator expenses deduction works. Even if you don’t itemize (and also if you do), you can claim up to $250 for expenses for books, supplies, computer equipment, other equipment, and supplementary materials used in the classroom if you are an “eligible educator.” And that’s where this gets tricky for homeschoolers.
The definition of an eligible educator for the purpose of the deduction is found at 26 USC §62(d)(1)(A) which says, “For purposes of subsection (a)(2)(D), the term ‘eligible educator’ means, with respect to any taxable year, an individual who is a kindergarten through grade 12 teacher, instructor, counselor, principal, or aide in a school for at least 900 hours during a school year.”
The definition of school is detailed at 26 USC §62(d)(1)(B), which defines a school as “any school which provides elementary education or secondary education (kindergarten through grade 12), as determined under State law.”
In some states, such as Texas, homeschools are considered private schools by case law and statute. That analysis is enough for some taxpayers to conclude that a homeschooling expense should qualify for the deduction.
Only not so fast. The authority for statutory adjustments to income (the technical name for above-the-line deductions) is found a little bit earlier in the statute at 26 USC §62(a)(2) titled “Certain trade and business deductions of employees.” That’s because the deduction was intended to reimburse paid employees for out-of-pocket expenses, not as a catchall for educators.
All of that statutory interpretation notwithstanding, the IRS also offers a hard “no” at Publication 17, which states: Qualified expenses do not include expenses for homeschooling.
So if you can’t take advantage of the educator expense deduction, is there another tax break (as with school uniforms)? Unfortunately, no. Under the Senate TCJA proposal, the definition of qualified expenses under 529 plans would have been expanded to include elementary and secondary schools, as well as homeschool students. The conference bill reflected that change. But remember when the bill got sent back? After the House and Senate voted, the bill was sent back to the House for a second vote because of procedural issues in the bill. In the final version, the provision as it applies to homeschool students was removed (it’s worth noting that some prominent homeschool proponents expressed relief that the definition was not expanded, fearing that could lead to more government oversight of homeschools).
Coverdell Savings Accounts were not affected by the TCJA and still do not allow distributions for homeschool expenses.
So, that leaves us back where we were in the beginning: There are no federal income tax breaks for homeschool parents. Homeschool parents may not claim the educator expense deduction, nor can tax-favored funds from a 529 plan be used to pay expenses for homeschool students. However, there may be breaks available at the state level. Check with your tax professional to find out more about the rules in your state.
