Iowa allows a remarkable 75% income tax credit for contributions to School Tuition Organizations (STO). A School Tuition Organization is a charitable organization that receives voluntary cash contributions from Iowa taxpayers and allocates those funds in tuition grants to Iowa school children, who use those grants to attend one of the accredited non-public schools represented by the STO. At least ninety percent (90%) of the money received by an STO must go back out in tuition grants.
12 different STOs are available in Iowa, serving dozens of private K-12 schools.
Don Bosco graduates
Don Bosco and St. Athanasius are part of the Dubuque Archdiocese STO, Our Faith STO. If you designate one of these schools as the beneficiary of your gift, 50% of you donation will go to that school! You can use this link to make your donation online, or click here to download a donation form.
Iowa tax benefits
Donors to an Iowa STO receive an Iowa tax credit of 75% of their donation. In other words, you’ll get 75% of your donation back from Iowa!
- This Iowa tax credit is not refundable. If you owe less tax than the amount of the tax credit for the year, the remaining credit can be carried forward for the following five years or until depleted.
- The tax credit is claimed on your Iowa income tax return.
- The Our Faith STO will provide you with a tax credit certificate number that must be reported on the IA 148 Tax Credits Schedule. You must wait for the certificate to be issued to you before your file your Iowa income tax return.
What are the tax aspects of contributing to an Iowa STO?
A tax credit reduces the amount of income tax you owe. A tax deduction reduces the amount of income subject to tax. Tax credits are therefore always more valuable.
Since the Iowa tax reform in 2023, only about 10% of Iowa taxpayers itemize deductions. Very few taxpayers receive any tax benefit from their charitable contributions.
If you’re an Iowa taxpayer who wants to donate to private school tuition assistance, you can make such a contribution and get 75% of your money back. That makes it easy to give more!
If your income is such that you have zero Iowa income tax, you will get no tax benefit from contributing to an Iowa STO.
Why do I donate to an Iowa STO?
- My parochial school education was very valuable to me, and I’d like to make such an education available to other students who cannot afford full tuition.
- By utilizing the Iowa STO, I can give FOUR TIMES as much and be in the same economic position as if I gave directly to the school for tuition relief.
- Since I live in a school district with an Iowa school district surcharge, my donation is even more valuable than the 75% credit.
- My school district surcharge is reduced by the percentage amount of the credit.
- Example: My Iowa tax bill is $5,000 before donation to STO. My school district imposes a 10% surcharge on my Iowa income tax return. I donate $4,000 to the STO, and receive a tax credit of $3,000 (75% of the $4,000 donation).
Tax savings
| Tax before credit | School surtax | Total before credit | Tax after credit | New surtax | New total | Tax Savings |
|---|---|---|---|---|---|---|
| $5,000 | 500 | $5,500 | $2,000 | 200 | $2,200 | $3,300 |
- My donation of $4,000 only cost me $700 net dollars after the tax savings!
- I was able to allocate $2,000 of my donation to the school of my choice for a net cost to me of only $700!
Caveats
- The credit is not refundable, so if you don’t pay Iowa income tax, you get no tax credit. However, if your Iowa taxable income is less in the year of donation than in subsequent years, the unused credit carries forward for five years.
- The Iowa credits available are limited to $20,000,000 per year. Through 2023, the limit has not been reached, but it is possible the full 75% credit could be limited in 2024 or later.
- Your contribution is not deductible as an Iowa itemized deduction, and is only 25% deductible on your federal return as an itemized deduction. (Only about 10% of taxpayers now itemize deductions, since the standard deduction is now so high).
- More information is available here.
If you owe Iowa taxes and you want to donate to tuition assistance for private schools in Iowa, the STO is the way to go!