Owning property or a home comes with a lot of benefits, but it's not cheap. Aside from your mortgage, you'll pay a property tax that helps fund services in your area, such as schools and law enforcement. But one thing you might not be clear on is the difference between school tax vs. property tax. Are they the same thing, or do you pay two taxes?
What Are School Taxes and Why Do They Matter?
School taxes fund public learning institutions in your community. Schools use the money they get through the tax to pay for:
Teacher salaries
Textbooks
Facility upkeep
Other school-related costs
Most communities include school taxes as a subset of property taxes. That means you won't receive a separate bill for school taxes since they're already part of your property tax payment.
How School Taxes Are Calculated
Calculating school tax starts with a budget forecast. Your local school district determines how much annual funding it needs to serve the community. It then applies the budgeted amount to the total property values available for assessment. Both details help school officials set a millage rate for school taxes.
The millage rate represents dollars per $1,000 of assessed property value. It's the amount for school funding included in the total property tax assessed on your home.
Let's take a simple example. Say your local school district determines it needs $100,000,000 to cover operational costs for the next year. The properties in its district have a total assessed value of $4,000,000,000. The millage rate is .025, or 2.5 cents for every $1,000 assessed. Here's the calculation:
$100,000,000 (Annual School Budget) ÷ $4,000,000,000 (Total Property Assessment Value) = 0.025 Millage Rate
School board officials usually retain authority over millage rates. However, local residents can participate in the process. Most communities hold regular meetings that are open to the public, where you can share your opinions and vote against changes to your property tax.
The Relationship Between School Taxes and Property Taxes
Generally, public schools, and (in most cases) charter schools, receive most of their funding through property tax revenues. Some states provide additional funding from income taxes, and schools may get assistance from the federal government for programs like special education.
Property taxes provide a steady stream of income that schools count on. As cities and towns grow, so do property tax value assessments. The additional tax can help offset a rise in school enrollments.
On the other hand, if people move out of the community, the school tax may decrease since there are fewer students to teach.
However, in many cases, school districts set their budgets for one to three years. Thus, if the area's real estate market doesn't meet expected growth, then school districts can have a budget deficit.
Comparing How Different States Handle School Taxes
Not everyone who pays property tax has children in public schools. Knowing that, some states offer exemptions and other schemes that help reduce your school-related property tax liability. Here are a few examples.
New York: The New York STAR Credit provides eligible homeowners with a monetary payment they can use to pay school taxes.
Texas: The Texas homestead exemption reduces a resident homeowner's property assessment value by $100,000 on school district taxes.
Florida: The Florida homestead exemption applies to all property taxes, including school-related taxes, up to $25,000. A second homestead exemption is available for properties assessed at over $50,000, but it does not
apply to school district taxes.
Allocation of Funds: Schools vs. Other Government Services
Local governments use property taxes to collect funds for many services besides schools. Your taxes often pay for:
Police, fire, and emergency services
Road repairs
Water and sanitation services
Public building and park maintenance
Many local governments include a breakdown on your property tax bill to explain where your money goes.
School Tax Relief Initiatives and Income-Based Programs
There are tools you can use to reduce your overall tax liability. IRS guidelines allow you to deduct up to $10,000 in annual state and local taxes on your federal tax return if you own a home. The adjustment reduces your taxable income, so you pay less in federal tax, thus compensating for some of the money you paid for school taxes.
Several states offer similar credits or deductions. In Vermont, eligible homeowners can claim up to $5,600 for state education property taxes.
Local exemptions for property tax vs. school tax may also reduce your bill or lower your home's assessed value.
Understanding the Role of Local Tax Commissions
Taxes are frequently discussed in political circles and among the public. That's understandable — they're a large portion of your home expenses and earnings. Few people would turn down an opportunity to lower their property taxes or find ways to improve efficiency in government spending.
For that reason, some state governments authorize local tax commissions to review spending on community services. For example, Pennsylvania has a law allowing municipalities to create a local tax study commission to review school taxes. Each commission includes up to five residents who review the current taxes and recommend changes.
Pennsylvania's law gives the public more influence in setting school tax rates. Instead of relying entirely on the school board's recommendations, community residents have the authority to voice their opinions through the commission formally.
What Taxpayers Need to Know About School Tax Responsibilities
School tax is a part of your property tax bill. While you may not be able to avoid it altogether, there are some ways you can reduce your obligation.
1. Apply for Exemptions
Many states offer programs you can apply for to reduce your home's assessment value or property tax rate. Explore the programs available to see what you may qualify for. Some examples include:
Homestead exemptions: These exemptions reduce your home's assessed value by a certain amount or percentage. Texas and Florida both offer general homestead exemptions for qualifying residents.
Age-related exemptions: Some states provide property or school tax reductions based on your age. Generally, they're available for people over 60 or 65.
Veteran exemptions: Military veterans may qualify for a reduction on their property taxes, particularly if they have service-connected disabilities or medical conditions.
2. Participate in Local Tax Meetings
Municipalities often hold public meetings concerning tax-related matters. These meetings allow residents to voice concerns about tax increases or changes. Use these opportunities to connect with local officials and voice your opinion.
3. Stay Up to Date With Your Local Property Tax Laws
At Ownwell, we help you keep on top of local tax trends. Bookmark our page to learn about upcoming property tax changes and current property tax rates in your state, county, and city.
Manage Your Tax Bills Effectively with Ownwell
Property tax is a part of homeownership, but that doesn't mean you're stuck with a hefty bill yearly. Many states provide exemptions and property tax reductions that you can apply for.
At Ownwell, our local tax experts can help you navigate the process and help you save on property taxes via retroactive homestead exemptions or through property tax appeals.
