Federal tax reform update
In May 2018, Indiana Code Section 6-3-3-12 was amended (Amendment) to create a tax credit for those saving for tuition expenses in connection with enrollment or attendance at an elementary or secondary public, private or religious school located in Indiana (Indiana K-12 Tuition).
For the tax year beginning January 1, 2018, Indiana taxpayers (resident or non-resident) filing a single or joint return may receive a ten percent (10%) Indiana state income tax credit against their Indiana adjusted gross income tax liability, up to a maximum of $500 for contributions to an Account that will be used to pay for Indiana K-12 Tuition. When combined with the Indiana state income tax credit taken for Indiana Qualified Higher Education Expenses, the maximum annual income tax credit cannot exceed $1000.
Effective January 1, 2019, the income tax credit for contributions made to an Account that will be used to pay Indiana K-12 Tuition increases to twenty percent (20%) up to a maximum, when combined with any Indiana state income tax credit taken for Indiana Qualified Higher Education Expenses, of $1000.
Also effective January 1, 2019, at the time a contribution is made to an Account, the contributor must designate whether the contribution is made for (i) Qualified Expenses that are not Indiana K-12 Tuition; or (ii) Indiana K-12 Tuition. Likewise, at the time of a withdrawal from an Account, the Account Owner must designate whether the withdrawal will be used for (i) Qualified Expenses that are not Indiana K-12 Tuition; or (ii) Indiana K-12 Tuition.
The Amendment also specifies that the Indiana income tax credit is not available for money credited to an Account that will be transferred to an ABLE account (as defined in Section 529A of the Internal Revenue Code).