What Are Educational Vouchers, Scholarship Tax Credits, and Education Savings Accounts? Vouchers School vouchers (usually called scholarships) have a designated dollar value that may be applied toward full or partial payment of tuition or fees at the participating private school of the parents' choice. Vouchers are similar to the G.I. Bill and Pell Grants, which are scholarships funded by the government and given to postsecondary students for use in the religious or nonreligious school of their choice. Corporate and Individual Tax Credits for Scholarship Donations Corporate and individual tax credits, for donations to school tuition organizations (STOs), reduce the tax liability of a corporation or individual. Some states allow either corporate or individual tax credits or both. Credits may be dollarfordollar or a percentage of the donation. If the individual tax credit is “refundable,” this allows the individual to receive a refund for the tax credit even if he does not owe taxes or the credit exceeds the amount he owes. A nonrefundable tax credit does not refund any excess credit to the taxpayer for the tax year. For example, if Lucy owes $200 in taxes and her tax credit is worth $250 because she donated that amount to an STO, Lucy would owe no taxes and, in a state with a refundable tax credit, she would receive a $50 refund. If she lives in a state with a nonrefundable tax credit she would owe no taxes but would not receive a $50 refund. Some states allow the individual to carry forward the remaining credit to the next tax year. Education Savings Accounts Education Savings Accounts are governmentfunded private accounts managed by parents for use on a variety of educational expenses for their child, using funds that would have been spent on the child in the public school system. Parents may choose among options such as private K12 schools, online education programs, certified private tutors, books or other curricular materials, and community college courses. Families may also save some of the money for future higher education expenses through a 529 college savings program. The state department of education calculates a student’s per pupil amount through the state’s finance formula and makes regular deposits into the accounts. Arizona lawmakers were the first to create such a program, called Empowerment Scholarship Accounts (ESAs). In this program, the state of Arizona deposits 90 percent of the funds for a participating child into an account, allowing families to pay for a variety of educational services through userestricted debit cards. Individual Tax Credits for K12 Educational Expenses Individual tax credits, for personal educational expenses, reduce the tax liability of an individual. Credits may be dollarfordollar or a percentage of expenses incurred. A refundable tax credit allows the individual to receive a refund for the tax credit even if he does not owe taxes or the credit exceeds the amount he owes. A nonrefundable tax credit does not refund any excess credit to the taxpayer for the tax year. For example, if Cynthia owes $200 in taxes and her tax credit is worth $250 because of educational expenses she incurred for her child, a state with a refundable tax credit would send her a refund check of $50. If she lived in a state with a nonrefundable tax credit, she would not receive a $50 refund. Some states allow the individual to carry forward the remaining credit to the next tax year. Individual Tax Deductions for K12 Educational Expenses Individual tax deductions for personal educational expenses reduce the amount of taxable income for an individual before the tax liability is calculated. For example if John and Sally have a taxable income of $50,000 a year and they buy $100 in textbooks for their son, their taxable income becomes $49,900.