January 9, 2018
What the New Tax Reform Law Means for Homeschooling Families
Christmas came early for millions of families across the nation with the tax reform bill that Congress passed in late December and that President Trump signed into law on December 22, 2017.
Here are some highlights of the new law:
1. The Child Tax Credit doubles to $2,000 per child. This means that all families can keep more of their own money to spend how they see fit on their children. The Child Tax Credit has also been made refundable, meaning that lower-income families who don’t have a federal income tax liability will now receive a portion of the Child Tax Credit in a similar way to the Earned Income Tax Credit—up to $1,400 per child.
Additionally, the income thresholds for the Child Tax Credit have been increased. Under the old tax laws, a married couple filing jointly who made $110,000 or more would see the Child Tax Credit reduced for their family. Under the new tax reform bill, the income phase-out starts at $400,000 for a married couple filing jointly.
You can see more about the changes to the Child Tax Credit in this helpful article.
2. 529 plans are expanded to K–12 tuition for public, private, and religious schools—but not homeschooling families. Senator Ted Cruz (TX) led the charge to ensure that families could use more of their own money for education expenses by including an amendment to the tax bill expanding 529 college savings accounts to cover K–12 public, private, and religious school tuition, as well as homeschool expenses. Senators Mike Lee (UT), Ben Sasse (NE), and Tom Cotton (AR) joined Senator Cruz as key leaders for this amendment. Vice President Mike Pence cast the tie-breaking vote to ensure that this amendment was adopted in the Senate’s original tax reform bill.
The homeschool language was then included in the conference report of the tax bill, and sailed through the House of Representatives. Unfortunately, at the last minute, Senators Bernie Sanders (VT) and Ron Wyden (OR) used a parliamentary procedure—the Byrd Rule—to eliminate homeschool expenses from the tax bill.
When the Senate parliamentarian agreed with Senators Sanders and Wyden, Senator Cruz gave an impassioned defense of homeschool families (watch it here starting at the 6-minute, 10-second mark). In a high-stakes vote, every single Republican senator voted to overturn the Senate Parliamentarian’s ruling stripping homeschoolers from the 529 expansion. Unfortunately, 60 votes were needed to accomplish this, and no Senate Democrats joined with the Republicans to ensure that homeschoolers were included in the expansion of 529 plans. As a result, 529 plans were expanded to cover K-12 tuition costs for all families. Only homeschoolers were left out of this exciting new expansion of 529 plans.
Under the new tax law, 529 college savings accounts can still be used by all families, including homeschoolers, for college expenses. In addition, families can now use their 529 plans for “tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school.”
While homeschoolers will not be able to use the new expanded 529s for K–12 homeschool expenses, they can still use them for higher education, and may be able to use them for tuition if their child is enrolled in or attends a “public, private, or religious school.” We encourage you to talk to a certified public accountant (CPA) and the administrators of such a school if you are wondering whether this could apply to you.
In addition, Coverdell Education Savings Accounts have been left unchanged, and will continue to operate as they have in the past.
Rest assured that HSLDA will continue to work to fix this discrimination against homeschoolers in 529 plans. Already, Senator Ted Cruz (TX), Representative Luke Messer (IN), and other elected officials have pledged to introduce legislation to fix this inequity, and Representatives Jason Smith (MO), Steve King (IA), and Karen Handel (GA) have already introduced such legislation. HSLDA opposes government funds for homeschoolers, but we support the ability of homeschooling families to use their own money in Coverdells and 529s, and will continue to work with our friends in Congress to secure this ability.
There are many other provisions in the tax reform law, including the lowering of tax rates across the board. To read the bill as passed by Congress and signed into law by President Trump, you can click here. To see a full summary of what is in the bill, click here. To see a helpful article about some of the other provisions in the new tax reform law, click here.
As always, HSLDA urges you to discuss how the new tax reform law will affect you with your CPA or tax advisor. Every family’s situation will be different, and this article should not be construed as giving tax advice of any kind.