New phase-out rules for Minnesota’s K-12 Education Credit

Minnesota consistently ranks among the highest-taxed states in the country. At the same time, per-pupil public education spending continues to rise, even as academic outcomes remain underwhelming. For parents, this can mean paying for their child’s education twice — once through taxes and again through out-of-pocket educational expenses when the system does not fully meet their children’s needs.

To offset a portion of those costs, two tax provisions (the K-12 Education Credit and the K-12 Subtraction) provide some tax relief for eligible Minnesota families.

For tax year 2026, updated phase-out thresholds — adjusted for inflation — for the Minnesota K-12 Education Credit mean that more families may qualify for at least a partial credit than under previous thresholds, while the number of families eligible for the full credit may be reduced depending on their income relative to the phase-out starting point.

Here’s what Minnesota parents should know.

K-12 Education Credit

Minnesota’s K-12 Education Credit is a refundable tax credit. The credit covers 75 percent of qualifying education expenses, which include tutoring, academic summer camps, textbooks and curriculum materials, school supplies, music lessons (with qualified instructors), and certain transportation costs, to name a few.

The credit is capped at $1,500 per child in grades K-12, but a family’s ability to claim the full amount depends on income. The allowed maximum is reduced once the family’s adjusted gross income is above the phase-out starting point.

The final credit claimed is the lesser of 75 percent of qualifying expenses (up to $1,500 per child) or the reduced maximum after the income phase-out is applied.

What’s changing

For 2026, the K-12 Education Credit now begins to phase out at $77,550 in adjusted gross income and is fully phased out at $83,550 for families with one or two qualifying children, according to Minnesota House Research. Each additional qualifying child adds $3,000 to the phase-out threshold. (The credit’s higher phase-out threshold is due to the automatic inflation indexing in existing state statute.)

Families earning less than $77,550 may continue to claim the full credit, while some middle-income families may now qualify for a partial credit, as they may not have qualified under previous thresholds.

Families whose incomes are near the phase-out thresholds should review their eligibility carefully, and all families should confirm whether they qualify, as some may not even realize the credit is available to them.

Here’s an example of how the updated credit thresholds will work.

Suppose a family has two children, and they spend $3,000 on eligible education expenses. The statutory cap is $1,500 per child, so the maximum credit they could receive before considering income limits would be $3,000. Since the credit covers 75 percent of those expenses, this family’s starting credit before any income reduction is $2,250. If the family’s adjusted gross income is below the phase-out threshold, say $76,000, the family may claim the full $2,250 credit.

If the family’s adjusted gross income is higher, say $80,000, then the credit is reduced. The family is $2,450 over the phase-out starting point ($80,000 – $77,550 = $2,450). So under Minnesota’s statutory formula, the credit is reduced by $2 for every $4 of income over the threshold for two or more qualifying children, resulting in a $1,225 reduction. Subtracting this from the maximum possible credit for two kids ($3,000) gives a reduced cap of $1,775. The family’s final credit is the lesser of the credit based on expenses ($2,250) or the reduced phase-out cap ($1,775). So, this family would claim $1,775. For families with even higher incomes, the phase-out can eliminate the credit entirely.

Example for Tax Year 2026, Two Qualifying Children, $3,000 in Expenses
(Phase-out begins at $77,550 and is fully phased out at $83,550)

Adjusted Gross Income	Credit Based on Expenses (75%)	Maximum Credit Cap Before Phase-Out	Reduced Cap After Phase-Out	Final Credit (Lesser of Expense Credit or Reduced Cap)
$76,000	$2,250	$3,000	$3,000	$2,250
$80,000	$2,250	$3,000	$1,775	$1,775
$85,000	$2,250	$3,000	$0	$0

For tax year 2023, the average tax savings was $453, according to Minnesota House Research estimates.

K-12 Education Subtraction (deduction)

Minnesota also offers a K-12 Education Subtraction, which reduces taxable income rather than providing a refundable credit. It is available regardless of income level.

Unlike the credit, the subtraction can include nonpublic school tuition, along with many of the same qualifying educational expenses eligible under the credit. It allows up to $2,500 to be subtracted for each student in grades 7-12 and up to $1,625 for each student in grades K-6.

For tax year 2023, the average tax savings was $107, according to Minnesota House Research estimates.

Save those receipts

Despite the changes to the credit, one thing has not changed: If you do not document your expenses, you cannot claim the credit or the subtraction.

These provisions apply to a range of families, and not just private school families as is sometimes assumed. Many eligible expenses apply to public school students, including tutoring, school supplies, and enrichment programs. Homeschool families may also qualify, as long as the expenses meet the statutory definition of eligible K-12 education expenses.

According to an analysis from EdChoice, Minnesota’s education tax credit represents just 0.1 percent of total K-12 public school spending.

Even though these two provisions offer only a small amount of tax relief, they still recognize the effort parents put into their children’s future. By keeping receipts and understanding eligibility rules, Minnesota parents can claim these benefits and make their hard-earned dollars go a little bit further. This is also an opportunity for Minnesota leaders to explore additional policies that would provide more meaningful support for more students and their education journeys.