Welcome to DOR's Tax Talk Blog

Tax Talk is a weekly blog published each Wednesday by DOR that discusses tax tips, DOR programs, and helpful information for tax preparers. During tax season blogs are posted on both Mondays and Wednesdays.

January 20, 2021

Are you saving up for college or trade school for a child, relative or even yourself? If so, you should check out Indiana’s CollegeChoice 529 education savings plans which let you make contributions to an account used to pay qualified higher education expenses. CollegeChoice 529 Savings Plans are administered by the Indiana Education Savings Authority (IESA), and help Hoosiers invest smartly and plan for the future.

These accounts can be used to pay for any college, university or vocational training program that’s eligible for federal financial aid, which includes a large amount of schools and programs. Qualified higher education expenses include:

• Tuition
• Fees
• Books
• Supplies
• Required equipment
• Reasonable room and board expenses (if beneficiary is enrolled half-time or more)
• K-12 tuition for a public, private or religious school (added in 2018)

In addition to being able to save money for education, if you contribute to an Indiana CollegeChoice 529 Education Savings Plan, you’re also eligible for a 20% state income tax credit of up to $1,000 each year on your contributions. That applies to anyone who contributes even if you’re not the owner of the account. So, the whole family can benefit from giving to the savings plan.

There are two changes to the tax credit that you should keep in mind while filing your taxes this season.

• The 529 savings plan credit is now available to more Hoosiers filing this tax season. Before 2020, individuals who were “Married Filing Separately” couldn’t claim this credit. Starting this tax season, they can! Each spouse who is married filing separately can claim maximum credit up to $500 or 20% of their own contribution, whichever is less.
• Withdrawals for payment of student loans are no longer considered “qualified higher education expenses.” If you make a nonqualified withdrawal (such as for student loans) and claimed the tax credit, you need to repay the tax credit by reporting it on your annual income tax return—just include Schedule IN-CR with the return and list the repayment on Schedule 4 of Form IT-40 or Schedule E of Form IT-40PNR, whichever is appropriate.

So, go forth and save! If you want to know more about or establish a CollegeChoice 592 savings plan, visit the IESA. For more information about savings plan tax credits, check out our Information Bulletin.

January 13, 2021

For almost 10 years, Hoosiers have been able to deduct up to $1,000 on their Indiana tax return for each child who attends a private or parochial school in Indiana or who is homeschooled. With so many students switching to virtual learning due to the COVID-19 pandemic, you can’t blame parents for wondering if they can take Indiana’s Private School/Homeschool Deduction.

Under current law, you cannot deduct education expenses for which you were repaid, if your child was enrolled in a public or charter school, regardless of where learning took place. You can, however, claim the deduction if your child was enrolled in a private school, including a parochial school, if the school is physically located in Indiana. Expenses associated with distance learning for schools located outside of Indiana do not qualify.

Here are a few other things you should know when claiming Indiana’s Private School/Homeschool Deduction:

• You must be entitled to claim an exemption for the child for federal tax purposes. A child includes a natural child, adopted child or child placed with you under a court-ordered guardianship or custodial arrangement. Foster children may not be considered as a court-ordered placement.
• The child must be eligible to receive a free elementary or high school education in an Indiana school corporation. (Daycare or preschool expenses do not qualify).
• You must have incurred expenses that were not reimbursed for tuition, fees, computer software, textbooks or school supplies. Purchases of computers and tablets do not qualify for the deduction.
• If you are married but file separately, only the spouse who claims the child as a deduction can claim the Private School/Homeschool Deduction.
• In case of divorce or legal separation, you must be eligible to claim the child as a dependent to also claim the deduction.
• As with all tax deductions, you should keep accurate records of expenses.

You can find more information about Indiana’s Unreimbursed Education Expenses Deduction in Information Bulletin #107. For information on other deductions you may be able to claim, check out our Indiana Deductions from Income page.

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