LEGISLATIVE SERVICES AGENCY
OFFICE OF FISCAL AND MANAGEMENT ANALYSIS
FISCAL IMPACT STATEMENT
LS 6603 NOTE PREPARED: Dec 11, 2024
BILL NUMBER: SB 154 BILL AMENDED:
SUBJECT: Various Tax Matters.
FIRST AUTHOR: Sen. Randolph Lonnie M BILL STATUS: As Introduced
FIRST SPONSOR:
FUNDS AFFECTED:XGENERAL IMPACT: State & Local
DEDICATED
FEDERAL
Summary of Legislation: Public School Educator Expense Credit: The bill increases the maximum amount
of the income tax credit for an individual employed as a teacher for amounts expended for classroom supplies
from $100 to $500 per taxable year.
Deduction for Unreimbursed Education Expenditures: The bill adds students who attend public schools for
purposes of eligibility for the unreimbursed education expenditure tax deduction. It provides that the amount
of the deduction is the lesser of:
(1) $1,000 multiplied by the number of the taxpayer's dependent children for whom the taxpayer
made education expenditures in the taxable year; or
(2) the total amount of actual unreimbursed education expenditures that the taxpayer incurs for each
of the taxpayer's dependent children in the taxable year.
(Under current law, the amount is $1,000 multiplied by the number of the taxpayer's dependent children for
whom the taxpayer made education expenditures in the taxable year.) It defines "public school".
Effective Date: January 1, 2025 (retroactive).
Explanation of State Expenditures: Department of State Revenue (DOR): The DOR will incur additional
expenses to revise forms, update instructions, and modify the existing tax processing system to implement
this bill. The DOR’s current level of funding and resources should be sufficient to make changes to the public
school educator expense tax credit and the deduction for unreimbursed education expenses.
Explanation of State Revenues: Summary - The bill would reduce state General Fund revenues by an
estimated $16.0 M to $29.1 M annually beginning in FY 2026 due to changes in the public school educator
expense credit and the deduction for unreimbursed education expenditures.
Additional Information -
Public School Educator Expense Credit: The bill modifies the public school educator expense tax credit. It
increases the maximum income tax credit a teacher receives for classroom supply expenses from $100 to
SB 154 1 $500. The modification is effective beginning in tax year 2025. The bill is estimated to reduce state General
Fund revenue by between $16.1 M and $21.2 M annually beginning in FY 2026.
This bill increases the tax credit for teachers’ unreimbursed classroom expenses. The nonrefundable credit
equals the lesser of $500 or the total amount paid by teachers for classroom supplies during the taxable year.
The bill ties the definition of classroom supplies to the current federal definition of classroom supplies
eligible for a federal income tax deduction for classroom expenses. Under this definition, certain expenses
for professional development courses related to the curriculum or to the students that the educator teaches
are also eligible expenses for the credit. The credit must be claimed in the tax year of the qualifying
expenses. Unused credits may not be carried forward or carried back. The credit may not exceed the amount
of the individual’s Adjusted Gross Income (AGI) Tax liability. Revenue collected from the Individual AGI
Tax is deposited in the state General Fund.
The estimate assumes average teacher spending of $432, equal to the average amount reported spent by
Indiana school teachers on unreimbursed classroom supplies for the 2019-2020 school year in the National
Teacher and Principal Survey conducted by the National Center for Education Statistics. The lower bound
assumes a similar number of tax filers continue to claim the state credit. In tax year 2022, 44,662 state
income tax filers claimed the credit. The upper bound estimate assumes the number of filers claiming the
state credit increases to equal the number of Indiana federal income tax filers who claim the educator expense
deduction, 58,693 on average for tax years 2019-2021. Both estimates allow for some taxpayers to have
insufficient tax liabilities to exhaust the full value of the nonrefundable credit. Both estimates also allow for
some taxpayers to spend less than the current $100 credit limit.
Unreimbursed Education Expense Deduction: The changes made to the unreimbursed education expense
deduction under the bill would change state General Fund revenue collections from individual Adjusted
Gross Income (AGI) Tax collections. Depending on the deduction amount that is claimed, the revenue impact
could range from a slight increase in state General Fund revenue of $125,000 to a revenue reduction of $8.0
M beginning in FY 2026.
Expanding the deduction for public school students would increase the number of deductions that will be
claimed. Conversely, the change in the deduction amount from a flat $1,000 deduction to the lesser of $1,000
or the actual amount of unreimbursed education expenditures could reduce the amount claimed per deduction
by private school students and homeschooled students.
Because the deduction amount under the bill is based on the lesser of $1,000 or the amount of actual
unreimbursed education expenditures, the revenue impact may be reduced if taxpayers do not keep track of
the out-of-pocket education expenditures they made throughout the year and either do not claim the
deduction or do not claim the full deduction amount for which they are eligible. The deduction may be
claimed on the following out-of-pocket education costs: tuition, fees, computer software, textbooks,
workbooks, curricula, school supplies, and other written material used for academic instruction or tutoring.
Beginning in the 2023-2024 school year, curricular materials are furnished to public school students at no
cost to families.
The estimate assumes tax filers could claim the deduction for unreimbursed education expenses for
approximately 1,005,000 public school students and 152,000 to 155,000 private school and homeschooled
students. The lower estimate assumes that the deduction would cover student school supplies, for an average
deduction amount per public school student of around $88. The higher estimate includes costs for school
supplies and electronics and computers for an average deduction amount per public school student of
SB 154 2 approximately $284. The estimate assumes an average per student deduction amount for private school and
homeschooled students of between $392 and $874.
Explanation of Local Expenditures:
Explanation of Local Revenues: Because the deduction will decrease taxable income, counties imposing
local income taxes could experience a change in revenue. Based on an effective local income tax rate of
1.67%, the change to local income tax collections could range from a slight increase of $70,000 to a decrease
of $4.4 M beginning in FY 2026.
State Agencies Affected: Department of State Revenue.
Local Agencies Affected: Local units that receive a local income tax distribution.
Information Sources: Indiana Department of Education, Choice Scholarship Program Annual Report:
Participation & Payment Data: 2023-2024;
https://www.in.gov/doe/files/2023-2024-Annual-Choice-Report.pdf; Internal Revenue Service, Statistics of
Income Tax Stats - Historic Table 2: State Data Tax Year 2019-2021; Internal Revenue Service, Educator
Expense Deduction. https://www.irs.gov/taxtopics/tc458; Legislative Services Agency. Indiana Handbook
of Taxes, Revenues, and Appropriations, FY 2023 and FY 2024; LSA Income Tax Database; National Center
for Education Statistics, https://nces.ed.gov/surveys/ntps/estable/table/ntps/ntps2021_6801_t12ns; National
Retail Federation. Back-to-Class Data Center, Back-to-School Consumer Spending Plans.
https://nrf.com/topics/holiday-and-seasonal-trends/back-school/back-class-data-center
Fiscal Analyst: Camille Tesch, 317-232-5293; Austin Spears, 317-234-9454.
SB 154 3