The federal tax overhaul—signed into law by President Donald Trump late last month—contains some big implications for K-12, including shake-ups to how state and local taxes are treated, changes to college-savings plans that let them be used for private school, and more.
School funding in states and districts might get shaken up:
That’s because the tax bill changes how deductions for state and local taxes work. In short, it imposes a new, $10,000 annual cap on those deductions. Supporters argue it will rein in state and local tax rates they say are too high. But critics say it could lead to stagnant or reduced state and local funding for K-12.
The teacher tax-deduction roller coaster ended where it started:
The initial measure introduced in the House would have eliminated the $250 deduction educators can take for spending their own money on classroom supplies. Teachers and principals argued it was unfair to toss that benefit, even though it wasn’t a particularly big one in the grand scheme of things. The deduction will cost an estimated $210 million in federal revenue in 2017. The Senate looked to double the deduction to $500. The final bill kept the deduction at $250.
Saving for private school choice just got easier—at least for some:
The revised tax law creates a new wrinkle for 529 college-savings plans, which are tax-advantaged. It lets parents use them for K-12 expenses, including private school choice, as well as postsecondary costs. It also puts a $10,000 cap per account on the money people can set aside for K-12 in these plans.
U.S. Secretary of Education Betsy DeVos and others have applauded the move. But others argue it will mainly help wealthier parents who can afford to set money aside and those already sending their children to private schools.
In a last-minute twist, the Senate parliamentarian ruled that the slice of this provision that allowed 529-plan dollars to be spent on home schooling violated a rule of the chamber. The home-schooling provision ended up being dropped from the final bill.
New rules for school and construction:
The final changes end what are known as qualified school construction bonds and Qualified Zone Academy Bonds, which are tax-advantaged tools that can help reduce total capital costs for schools—the latter are particularly important to charter schools. However, charter advocates have praised the new tax code for preserving Private Activity Bonds, which provide special financing for some projects.
A version of this article appeared in the January 17, 2018 edition of Education Week as Tax Overhaul’s Impact on K-12