If you could receive a 75% rebate reducing what you owe in Iowa income taxes, would that sound too good to be true? Well, it is not; the best tax credit in Iowa is a 75% tax credit given for donations to an STO.
So what is an STO? An STO, or School Tuition Organization, is a charitable organization that distributes tuition grants to low- and middle-income families struggling with the expense of sending their children to non-public (aka parochial) schools. There are 12 highly regulated STOs in the state of Iowa. The Our Faith STO (www.ourfaithsto.org), of which I am the director, supports families within the boundaries of the Archdiocese of Dubuque. This large 30-county area of northeast Iowa has 47 parochial schools, which in the 2020-21 school year educated 8,780 students.
On May 20, the best tax credit in Iowa got better when education legislation passed, increasing the STO credit from 65 to 75%. Let’s uncover how this 75% credit works and why donations to STOs deserve the best tax credit in Iowa.
The financial scenarios are simple. For example, if you’re an Iowa business owner who pays state taxes, you could donate $100,000 to our STO and reduce your taxes owed by $75,000. On the other hand, if you’re more like the average Iowa taxpayer, you could donate $1,000 or even $100 and receive a $750 or $75 credit. Donations made in cash, as IRA distributions, appreciated securities, or even gifts of grain all qualify. These monies then flow through the STOs, such as the Our Faith STO, which distributes them to income-qualifying families seeking a Catholic education.
So why is the STO Tax Credit the best in Iowa? First of all, it provides the most significant benefit back to the donor. There are numerous other highly recognizable tax credits in Iowa related to alternative energy, business development or philanthropic areas, but none provides a higher percentage of credit. In 2021, the state’s 12 STOs were collectively allocated $15 million in tax credits incentivizing this charitable giving. The Our Faith STO receives $4.2 million in credits. Unfortunately, these credits are limited, so when Iowa taxpayers claim them all, they are gone.
So why do STOs and their families deserve such a benefit? Simply put, non-public schools are good for the economy. They create jobs for teachers and support staff, who in turn pay taxes to support public schools. They lessen the burden on the public school system, which would have challenges with an influx of parochial school students, and the non-public schools save the Iowa taxpayer money.
Annually, Iowans pay an estimated $9,862 to educate each K-12 student in the public school systems (according to National Center for Education Statistics from 2020). If all 8,780 students covered by the Our Faith STO schools flooded into the public school system, taxpayers would be paying an estimated $86.2 million annually to educate them. Therefore, the $4.2 million in tax credits afforded our STO is of great value to taxpayers.
Lastly, and most importantly, the faith-based traditional Christian values taught in parochial schools pay dividends on which no one can place a price. The health of our Catholic schools is vitally important. Whether you feel this way or not, maybe 2021 is the year you start taking advantage of this 75% tax credit. We encourage you to consult with your tax or financial adviser for more details. Help a family, help our Catholic schools, and help yourself by donating to your STO.