Illinois Treasurer warns of college savings tax penalties
SPRINGFIELD, Ill. (AP) — Families in Illinois that have college savings plans won’t get a break on their state taxes if they use those accounts to pay for private K-12 tuition, Illinois Treasurer Mike Frerichs said.
Frerichs warned Thursday that families with Bright Start or Bright Directions college savings plans who attempt to claim a private tuition deduction could potentially face a tax penalty from the state.
The new federal tax law includes a provision allowing families with 529 college savings plans — which was originally only for higher-education expenses like tuition, fees and books — to use those tax-deductible funds for private K-12 tuition starting this year.
“Our analysis concludes that families who use Bright Start or Bright Directions money on elementary or high school expenses and then cite those expenditures when seeking tax relief will be in conflict with state law and could incur tax penalties if audited by state authorities,” Frerichs said.
The savings programs aim to incentivize taxpayers to put money aside for college tuition, The Journal Star reported.
The Illinois Department of Revenue agreed with Frerichs’ analysis, saying the state plans to “only allow expenditures on post-secondary education without penalty.”
Frerichs said there are more than 450,000 accounts in Illinois, with about $9 billion invested in them.
“The whole idea on the state tax deduction was to incentivize saving for college,” Frerichs said. “It was not to incentivize private education.”
Information from: Journal Star, http://pjstar.com