13. Minnesota-K-12 Education Credit and Subtraction⁶ Program

Program type: Tax credits and tax deductions to parents for educational expenses

Description: The Minnesota K-12 Education Credit and Subtraction Programs provide financial assistance to parents of qualifying students. To qualify, a student must attend a public, private, or home school. Under the credit program, parents of qualifying students may receive Minnesota tax credits for qualified expenses including: tutoring by qualified instructors, fees for qualified after-school programs, tuition for qualified summer camps, music lessons by qualified instructors, qualified nonreligious books and materials, purchase or rental of musical instruments for use in regular school music classes, qualified transportation costs, and up to $200 in computer-related expenses. Under the subtraction program, parents of qualifying students may receive subtractions to Minnesota taxable income for qualified expenses, which include those covered under the credit program, in addition to: private school tuition, and tuition for college courses used to satisfy high school graduation requirements. The subtraction program may be used for expenses otherwise covered by the credit program but in excess of the allowable amounts of credit described below. The same expenses may not be used to claim both a credit and a subtraction.

Amount of assistance: The amount of credit allowed is 75 percent of the amount expended. For families with incomes of $33,500 or less, the maximum credit amount is $1,000 per qualifying student. For families with incomes above $33,500, the maximum credit amount is ratably reduced based on the number of students for whom a credit is claimed. For families with one qualifying student, the credit is reduced by $1 for each $4 of income over $33,500, meaning that the credit fully phases out for an income of $37,500. For families with two or more qualifying students, the credit is reduced by $2 for each $4 of income over $33,500, meaning that the credit fully phases out for an income of $37,500 for families with two students, and extends by an additional $2,000 of income for each additional student for whom a credit is claimed.

The maximum subtraction amount is $1,625 per student in grades K-6, and $2,500 per student in grades 7-12. No income restrictions apply to the subtraction program.

Number of participants: In the 2005 taxable year, 57,114 taxpayers claimed credits worth an average of $269, and 226,141 taxpayers claimed subtractions worth an average of $1,214.

Authorizing statutes:
Tax Credits: Minn. Stat. § 290.0674
Tax Deductions: Minn. Stat. § 290.01

Legislative history: Minnesota enacted the tax subtraction program in 1955, with amendment in 1997. The tax credit program was enacted in 1997 and first implemented for the 1998 taxable year. On July 13, 2005, the tax credit was expanded by removing a $2,000 per family limit of credit and instituting the credit phase-out, described above. Previously, no tax credits were available to families with incomes of $37,500 or more, irrespective of the number of students for whom a credit was claimed.

Judicial history: In 1983, the U.S. Supreme Court upheld the constitutionality of the subtraction program in Mueller v. Allen.

For more information, see: http://www.taxes.state.mn.us/taxes/individ/
other_supporting_content/inctaxfs8.shtml#P18_2189.

6 The Minnesota Department of Revenue uses the term "subtraction" rather than the term "deduction."