What is the tax credit for children with disabilities all about?

Parents of children with disabilities can now claim a tax credit of up to $6,000 for educational expenses that include private school tuition, therapy and tutoring thanks to a new law that went into effect July 1.

House Bill 344 (Tax Credits for Children with Disabilities) creates an individual income tax credit for part of the expense of each eligible child who is educated in a home school, private school or in a public school that charges tuition. The credit is equal to the amount paid for tuition and other educational and therapeutic expenses not to exceed $3,000 per semester. If requested, the parent must provide supporting documentation to the state Department of Revenue. The credit would apply to semesters for which the credit is claimed beginning on or after July 1, 2011.

The tax credit is nonrefundable, which means it allows taxpayers to receive a refund up to the amount of income taxes owed to the state or $6,000 per year. For example, if a family owes $4,000, then they will only be able to receive that amount in their return.

The savings from this credit will also create a new ‘Fund for Special Education and Related Services.’ This fund, under the control of the State Board of Education, will be used for special education and related services for children with disabilities in the public schools and help reevaluate children who benefit from the tax credit every three years to determine their continued eligibility for the tax credit.

In a February 2011 poll commissioned by PEFNC, 82 percent of Democratic voters favored a program like House Bill 344 (Tax Credit for Children with Disabilities).

Fiscal impact of tax credits

Determining whether allowing tax credits for parents of children with special needs is an economically feasible option requires answering key questions:

Is the tax credit less costly than educating the student in public school and how many parents are predicted to utilize this option?

What percentage of eligible students will take advantage of the tax credit?

Will North Carolina state and local governments save money by giving parents more educational options?

A child with special needs is devoted about $3,000 more in state and local base funds than a child without special needs.

When other funding requirements are considered, such as additional funding for students falling behind in grade level, the actual cost to educate a child with special needs in public schools can soar to more than $14,500 per year. This is more than twice the cost for a child with no additional needs at $6,937 per year.

Recent estimates by the General Assembly’s Fiscal Research Division show that after the first two years, this tax credit will save North Carolina about $9.1 million per year and counties about $3.9 million per year. This is a net gain to state and local governments of approximately $13 million per year.

Using the middle range of estimates, about 2,055 students with special needs will be provided an alternative education through this program. The public school system will be able to save time, energy and resources. In addition, taxpayers will see their tax dollars spent more efficiently.

The ‘Fund for Special Education and Related Service’ will be used for special education and related services for special needs children in public schools. It will be funded at the end of each fiscal year (after the first year) with $2,000 for each credit given that year. Revenues from this fund will also be used to reimburse school districts for revising Individualized Education Plans (IEPs) and reevaluating students every three years to determine continued eligibility for the tax credit.

North Carolina currently funds nearly 172,000 children with special needs in our schools, which leaves out a number of children with special needs who are not in the public school system. The state has an obligation to assist these children who have a right to be enrolled in public education.

Allowing tax credits for children with disabilities will provide a small reprieve for those children whose circumstances have drawn them away from a public school system of which they are entitled.

This bill will assist parents who cannot easily afford alternative means of education. If a family is struggling financially, they may be able enroll their child in a public school for a year before transferring them to a school that is better equipped to meet their child’s needs.


Similar programs

Programs like House Bill 344 (Tax Credits for Children with Disabilities) exist in Arizona, Florida, Georgia, Louisiana, Ohio, Oklahoma and Utah.

Florida’s program, The McKay Scholarship Program for Students with Disabilities, is the longest running in the country and is similar to House Bill 344.

Any student with an IEP is eligible for the scholarship. Of 370,000 eligible students, 21,054 participated during the 2010-2011 school year. The scholarships range from $4,500 to $19,000.

The average McKay scholarship in 2010-2011 was $6,627, just $627 more than the proposed tax credit for special needs children in North Carolina.

Who qualifies under House Bill 344?

A student must:

Have an IEP.

Receive special education or related services on a daily basis.

Have been enrolled in public school the previous year (i.e. fall semester then spring semester or spring semester then fall semester) OR have been receiving special education or related services through the public schools as a preschool child with disability.

Be under the age of 22.

Receive a revised IEP and be reevaluated to determine
continued eligibility every three years

*An IEP specifies:
– the services a student will receive
– modifications the student requires for classes or testing
– whether the student needs alternate assessments
– which regular education classes the student will take
– how much of each school day the student will spend with non-disabled peers

A student is ineligible if:

They have graduated from high school prior to the end of the semester.

They have been placed in a nonpublic school or facility by a public agency at public expense.

They have spent any time enrolled as a full-time student taking at least 12 hours of academic credit in a postsecondary educational institution.

They were 22 or older for the entire semester.


Below is a sample form, which must be completed in order to receive the credit, that can be received from the state Department of Revenue.

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