Josh Mullins - The Journal Record
Aug 30, 2023
The Legislature recently passed the Oklahoma Parental Choice Tax Credit Act, which provides Oklahomans an opportunity to receive a tax credit related to the costs of private school.
The Legislature recently passed the Oklahoma Parental Choice Tax Credit Act, which provides Oklahomans an opportunity to receive a tax credit related to the costs of private school. The tax credit applies to “qualified expenses,” which are defined as tuition and fees at a private school accredited by the Oklahoma State Board of Education or another accrediting association. The credit is first available for the 2024 tax year.
Qualified expenses you can claim the credit for include:
• Tuition and fees for nonpublic online learning programs.
• Academic tutoring services provided by an individual or a private academic tutoring facility.
• Textbooks, curriculum, or other instructional materials.
• Fees for national standardized assessments.
The amount of the tax credit available can vary between $5,000 and $7,500 per qualifying student during the tax year and can’t exceed the actual amount of the qualifying expenses for the year. It is also important to note that there are provisions regarding the amount of income that a household reports on their tax return as adjusted gross income that determine how much of a credit a household is able to take during a tax year. For the 2024 tax year, if your household reports adjusted gross income of more than $250,000, you are limited, per student attending a private school, to the lesser of qualified expenses or $5,000. If your adjusted gross income does not exceed $75,000 as a household, your credit is the lesser of $7,500 or the amount of qualified expenses per student.
It is important to determine the year of your household income. For the 2024 tax credit, you are required to provide a copy of your 2022 household income tax return to support the amount of your adjusted gross income.
Other tax benefits to consider are Oklahoma 529 plans. If you are filing an income tax return for Oklahoma, you can take up to a maximum deduction of $10,000 per year for a single return and $20,000 per year for a joint return. The deduction is only available on your Oklahoma income tax return, but the funds are allowed to grow tax-free for federal and Oklahoma. If those funds are used for qualified education expenses, they can be withdrawn tax-free.
An overlapping area between the Parental Choice Tax Credit and 529 plans is that qualifying expenses from both can apply to tuition in connection with enrollment or attendance at a primary or secondary private school. For 529 plans, qualifying expenses are up to a maximum of $10,000 of distributions per taxable year per student.
The qualifying expenses are very similar for either source of tax benefit and both include tuition to a private school. Discuss with your CPA how these tax benefits may interact with each other to find the best solution regarding your tax planning needs. Remember, contributions to an Oklahoma 529 plan are considered an adjustment to your Oklahoma Adjusted Gross income, and OK Parental Choice Act expenses are considered a tax credit.
Josh Mullins, CPA, is a partner at Arledge, the largest locally owned accounting firm in the Oklahoma City metropolitan area. Arledge is a recognized leader in the accounting industry offering practical solutions in the areas of tax planning, auditing, consulting, accounting advisory services and client accounting.