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Application of the Oklahoma Parental Choice Tax Credit Program

See details on an Oklahoma refundable tax credit for eligible private and home school students.

Background

The Oklahoma Parental Choice Tax Credit establishes a refundable tax credit for taxpayers with qualified education expenses for eligible students in the state of Oklahoma. Eligible students are residents of Oklahoma who are eligible to enroll in public school pre-kindergarten through grade 12. The credit is bifurcated into the private school tax credit and the home school tax credit.

Operation of the Private School Tax Credit

An eligible student attending an accredited private school may be eligible for a refundable1 credit for tuition and fees charged to attend the institution. To claim the credit, a taxpayer is required to submit an online application with applicable documentation, including an affidavit, to verify enrollment in the qualified institution. After the Oklahoma Tax Commission approves the application, installment payments shall be mailed directly to the private school where the student is enrolled. In addition, the qualified institution must complete an online Participation Agreement to verify eligibility.

The maximum credit allowed is $7,500 per household whose total federal adjusted gross income (AGI) does not exceed $75,000, with adjustments reducing the maximum credit allowed as AGI increases. The maximum credit is $5,000 for households whose AGI exceeds $250,000.

In addition, the credit is subject to an annual statewide limitation, and total credits may not exceed $150 million and $200 million for tax years 2024 and 2025, respectively.

Operation of the Home School Tax Credit

A household in which students are educated by other means may be eligible to claim up to $1,000 in refundable credits per eligible student for qualified expenses in the year in which the qualified expenses were incurred. The credit may be claimed via the Oklahoma income tax return.

Qualified expenses for claiming the home school tax credit include:

  • Tuition and fees for nonpublic online learning programs;
  • Academic tutoring services;
  • Textbooks, curriculums, or other instructional materials; and
  • Fees for national standardized assessments.

While there is no AGI threshold over which the credit will be phased out, the home school tax credit is subject to a statewide annual limitation of $5 million.

Private School Tax Credit – Includable in Federal AGI?

State and local governments are required to file Form 1099-G to report certain government payments such as unemployment compensation, state or local income tax refunds, credits or offsets, and taxable grants. A copy of 1099-G must be furnished to recipients of the payments.

According to the Oklahoma Tax Commission website, a Form 1099-G will be issued to taxpayers who receive a Parental Choice Tax Credit payment. It also states that while House Bill 3388 exempts amounts received for the Parental Choice Tax Credit from Oklahoma income tax, no determination can be made as to whether receipts from the program will be taxable for federal income tax purposes. The potential addition to a taxpayer’s federal AGI could give rise to unintended tax consequences for program participants.

Many other federal and state programs look to federal AGI to determine eligibility. For instance, the Free Application for Federal Student Aid (FAFSA) program uses AGI to determine family eligibility for grants, work-study, and student loans for college expenses. As another example, the Oklahoma’s Promise program is also dependent on federal AGI for eligibility to receive state funding for college tuition.

How Forvis Mazars Can Help

The potential increase to AGI from the inclusion of the Oklahoma Parental Choice Tax Credit may cause some taxpayers who would otherwise be eligible for other federal and state grant programs to no longer qualify for benefits. If you have any questions or need assistance, please reach out to a professional at Forvis Mazars.

  • 1See Article C.6 of 68 OK Stat Section 2355 (2023).

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