PreK-12 Tax Benefits

The federal government provides some tax benefits for K-12 education. These include a tax deduction for teachers for out-of-pocket classroom expenses, and two types of tax credit bonds for public school construction.

Teacher Out-of-Pocket Classroom Expenses

The federal government offers a $250 per year above the line tax deduction to teachers for out-of-pocket classroom supply expenses. The estimated cost of the deduction was estimated at $170 million in 2014.

Tax Credit Bonds for School Construction

Two federal tax credit bond programs subsidize public educational facilities construction. The first, the Qualified Zone Academy Bond (QZAB) program, subsidizes the interest payments on up to $1.4 billion annually in bonds issued by charter schools to finance school facility construction and improvement. The Qualified School Construction Bond (QSCB) program, a new program created by the American Recovery and Reinvestment Act, subsidized up to $11 billion in bonds issued in 2009 and 2010 by traditional public schools and school districts to finance construction.

For both bond types, the federal government provides the company or individual that holds the bonds with tax credits in lieu of interest, making the bonds essentially interest-free for the issuing school or school district. The issuing school or school district must repay the bond principal within ten years of issuance. The QZAB program is estimated to cost $200 million in foregone tax revenue in 2013.

In 2010, Congress expanded both programs under the Hiring Incentives to Restore Employment (HIRE) Act so that the federal government could make direct payments to school districts to cover most of interest on the bonds instead of giving the bond holder a tax credit. This change means that the Qualified School Construction Bond program now has outlay effects of $650 million in 2014 in addition to the income tax expenditures described above.