The Iowa School Tuition Organization Tax Credit

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Iowa offers dozens of obscure tax credits. The one I get asked about most is the tax credit available for donations to a “school tuition organization” or STO.

Here’s how the Iowa Department of Revenue defines an STO:

A school tuition organization must be a charitable organization in Iowa that is exempt from federal taxation under section 501(c)(3) of the Internal Revenue Code that allocates at least 90% of its annual revenue in tuition grants for children who reside in Iowa to allow them to attend a qualified school of their parents’ choice. The contribution cannot be used for the direct benefit of any dependent of the taxpayer or any other student designated by the taxpayer.

From the 2014 instructions to the Iowa Form 1040

The credit is 65% of the amount donated (so if a person donates $1,000, they get a $650 tax credit). The credit is non-refundable but any unused credit can be carried forward for up to 5 years.

The total amount of credits available in a year is limited by the state (the cap was $12 million in 2014). Taxpayers making donations to an STO will receive a certificate number from the state. This number must be reported on the taxpayer’s tax return in order to claim the credit.

Click here to find a list of STOs in Iowa.