Special Needs Tuition and Contribution Credits in SC
For special needs students, SC is a very generous state. We are very fortunate to live in a place where the tax policy is designed to help offset the costs of special needs tuition and encourage corporations and individuals to contribute to the same programs. The following are the different programs that are available.
529 programs are educational savings accounts that allow contributions to be invested without any tax on investment gains or income if the funds are used for qualified educational expenses. Accounts can be set up by almost anyone. The recipients (beneficiaries) can be any student and the beneficiaries can be changed as often as necessary. Even the contributor can be a beneficiary. Originally the funds could only be used for higher education, but with the passage of tax reform in 2018, up to 10K per student, per calendar year can be used for attendance at a private K-12 school. In addition to the tax savings on the investment gains, SC offers an unlimited state tax deduction for contributions to SC 529 plans. The SC version of the 529 plan is called Future Scholar (www.futurescholar.com ). Where to open? Any bank, investment firm or online.
ABLE accounts function in the same manner that 529 plans do, allowing tax-free investment gains /income, and a state tax deduction but the contributions can be used for any disability-related expenses. The list is long and can be found on the website www.palmettoable.com. There are no limits on the amount you can withdraw for eligible expenses, but contributions are limited to 15K a year.
Coordination between 529 and ABLE accounts and government benefits
While the 529 contributions are unlimited, each dollar contributed to the 529 accounts reduces the 15K maximum that you can contribute to the ABLE account the same year. However, 529 account balances can be rolled into ABLE accounts. One strategy to employ for special needs students in SC is to put as much money into the 529 plan while the beneficiary is a student and then when they are no longer in school, roll the balances into an ABLE account each year up to the maximum 15K a year to cover disability-related expenses. One great benefit is that amounts in ABLE accounts are not included when determining eligibility for SS, Medicare and other government programs. Neither are 529 balances included. The only caveat is that if the ABLE beneficiary dies, the funds are subject to Medicare reimbursement.
SC Exceptional Credit
Called Exceptional SC, this program offers up to 11K in assistance for attendance at a special needs private school. There are two ways this is done:
Scholarships are granted to qualifying students annually on a priority basis. Those having received the scholarships in the previous year have priority before new applicants are considered. The applications have traditionally been processed during two open periods each year and there is a global cap on the total amounts that are granted through the program annually. You can find more info at www.exceptionalsc.org/apply
Parental Refundable Credits
For those not receiving scholarships or only partial scholarships, the second method is a tax credit. This path has a bit of popcorn drama as SC Department of Revenue “opens the gate” at a specific time and takes first come first served applications via their web site, fax or mail (mail is a bad choice here). In 2019, that gate opened at noon, October 1. After applying, if you are chosen, you will receive a letter authorizing you to claim the credit on your return. The tuition (at least the amount you are claiming) must be paid before the date the applications are taken and any amounts received via the scholarship reduces the amounts available through the credit. The credit cannot exceed 11K less any scholarship you received.
No child enrolled? There are benefits for contributing!
An individual can receive a dollar for dollar credit on their SC tax return of up to 60% of their tax liability for contributions to fund the Exceptional Needs program. For example, if your tax return shows that your SC tax liability is 10K, you can contribute 6K to the program in lieu of paying 6k in tax. It gets better. Since these contributions are charitable deductions, you can include them on your Federal tax return as an itemized deduction. For example, if you are itemizing and are in the 24% tax bracket, giving 6K to the program in lieu of the tax also nets you a 6K itemized charitable contribution deduction. The result is an additional savings of $1,440 in Federal taxes (6000 X 24%) . This also applies to those that are owners of “pass-through entities” like LLCs, Partnerships and S Corps. This is potentially a return of 10-35% on your contributions and recent Federal tax regulations have confirmed the practice.
Corporations are also eligible. Corporations that contribute to the special needs fund receive a dollar for dollar credit against their SC corporate tax liability AND a Federal charitable deduction.
Want more info?
The following professionals have offered to help parents with these accounts:
Dan Egerdahl, Edward Jones Financial Advisor
27 S Pleasantburg Dr, Suite 50, Greenville SC 29607
Joseph Smith, President TravelTax
46 St Mark Rd, Taylors SC