A tuition tax credit is similar to most other familiar tax credits. Certain states allow individuals and/or businesses to deduct a certain amount of their income taxes to donate to education. Depending on the program, these donations can either go to a public school or to a School Tuition Organization (STO), or both. The donations that go to public schools are often used to help pay for after-school programs, schools trips, or school supplies. The donations that go to School Tuition Organizations are used by the STO to create scholarships that are then given to students. These programs currently exist in Arizona, Florida, Illinois, Iowa, Minnesota and Pennsylvania.
Arizona has probably the most well known and fastest growing tax credit program. In the Arizona School Tuition Organization Tax Credit program individuals can deduct up to $500 and couples filing joint returns can deduct up to $625. About 20,000 children received scholarships in the 2003-2004 school year. And, since the program has started in 1998, over 77,000 scholarships have been granted