Most schools are tax exempt, but the rules depend on what kind of school and which state you live in

Public schools are tax exempt by law. They do not pay federal income tax, state income tax, or local property tax. This exemption exists because schools are government agencies funded by tax dollars — they are essentially spending public money to serve the public, so taxing them would be circular.

Private schools and religious schools have a different status. They can claim tax-exempt status if they meet specific requirements set by the IRS and your state, but they are not automatically exempt the way public schools are. A private school that does not hold tax-exempt status must pay property taxes and income taxes like any other business.

Colleges and universities — both public and private — can be tax exempt, but again, the exemption is not automatic for private institutions. A private college must file for and maintain tax-exempt status separately.

Key Takeaways

  • Public schools are automatically tax exempt at the federal, state, and local level because they are government entities funded by taxes.
  • Private schools must meet IRS requirements to claim tax-exempt status; without it, they pay property tax and income tax like other businesses.
  • Religious schools can be tax exempt, but only if they register with the IRS and meet the same rules as other private schools.
  • Tax-exempt schools must use all revenue for educational purposes and cannot distribute profits to owners or shareholders.

How public schools stay tax exempt

Public schools are funded by local property taxes, state income taxes, and federal appropriations. Because the tax money flows directly to the school as a government agency, the school itself does not owe taxes on that money — it would be taxing the same dollar twice. The school building, the land it sits on, and any equipment the school owns are all exempt from property tax assessment.

This exemption applies to all public K-12 schools and public universities. It does not require the school to file paperwork or renew the exemption each year. The exemption is built into the law that created the school as a public entity.

What private schools must do to become tax exempt

A private school that wants tax-exempt status must file Form 1023 or Form 1023-EZ with the IRS and meet the definition of a charitable organization. The IRS requires the school to demonstrate that it operates for educational purposes and does not benefit private individuals or shareholders. The school must also show that it serves a public purpose — this does not mean it has to be free, but it does mean the school cannot exist primarily to enrich its owners.

Once the IRS grants tax-exempt status, the school must file Form 990-N, Form 990-EZ, or Form 990 each year, depending on its size and revenue. These forms are public records and show how the school spent its money. If the IRS finds that the school is no longer meeting the requirements — for example, if it is distributing profits to owners or using funds for non-educational purposes — it can revoke the exemption.

Private schools that do not hold tax-exempt status pay federal income tax on net revenue, state income tax (in most states), and local property tax on the school building and land. Some states also charge sales tax on school supplies and equipment.

Religious schools and tax exemption

Religious schools can be tax exempt, but they follow the same IRS rules as other private schools. A church-run school must file Form 1023 with the IRS and meet the charitable organization standard. The fact that the school is affiliated with a religion does not automatically grant exemption.

Some states have additional rules. A few states offer property tax exemptions for religious buildings but not for schools operated by religious organizations. Check your state's tax authority website to learn whether religious schools in your area receive any special treatment beyond the federal exemption.

What tax-exempt schools cannot do

A school with tax-exempt status must use all revenue for educational purposes. It cannot distribute profits to owners, shareholders, or board members. It cannot use school funds to support political campaigns or candidates, though it can engage in limited lobbying on education policy. It cannot discriminate in hiring or enrollment based on race, color, or national origin.

If a tax-exempt school closes or dissolves, any remaining assets must go to another tax-exempt organization — they cannot be divided among the owners. This rule ensures that the tax benefit the school received over the years stays within the charitable sector.

Colleges and universities

Public universities are tax exempt for the same reason public schools are — they are government entities. Private colleges and universities must file for tax-exempt status with the IRS, just as private schools do. Most large private universities hold this status, but some smaller or for-profit colleges do not.

A for-profit college or university does not hold tax-exempt status and pays income tax and property tax. Some for-profit institutions are accredited and legitimate; others are not. The presence or absence of tax-exempt status is one indicator of whether an institution is structured as a nonprofit, but it is not a measure of quality or legitimacy on its own.

How to learn about a school is tax exempt

For public schools, the answer is always yes — no research needed. For private schools, colleges, or universities, you can search the IRS Tax Exempt Organization Search tool on the IRS website. Type in the school name and city. If the school appears in the results, it holds federal tax-exempt status. If it does not appear, the school either does not have exemption or the exemption was revoked.

You can also contact the school directly and ask whether it is a 501(c)(3) organization — this is the IRS designation for tax-exempt schools and nonprofits. The school's website often lists this status in the "About Us" section or in financial disclosures.

Frequently Asked Questions

Do parents have to pay property taxes for public schools?

Yes. Public schools are funded by property taxes, income taxes, and other government revenue. Parents who own property pay property tax as part of their regular tax bill; the school does not pay property tax separately. Renters do not pay property tax directly, but landlords typically pass the cost to tenants through rent.

Can a private school lose its tax-exempt status?

Yes. The IRS can revoke tax-exempt status if the school stops meeting the requirements — for example, if it begins distributing profits to owners, discriminates in hiring, or uses funds for non-educational purposes. The school receives notice and has a chance to respond before revocation is final.

Do charter schools pay property taxes?

No. Charter schools are public schools, even though they are independently operated. They are funded by public money and do not pay property taxes. However, some charter schools lease buildings from private owners, and those lease payments come out of the school's budget.

What happens to a school's tax-exempt status if it closes?

The exemption ends when the school closes. Any remaining money or property must be transferred to another tax-exempt organization. The former school cannot distribute assets to owners or use them for non-charitable purposes.

Are school donations tax deductible?

Donations to public schools are not tax deductible because public schools are government agencies, not charities. Donations to private schools with 501(c)(3) status are tax deductible if you itemize deductions on your federal tax return. Check the school's tax-exempt status before donating if you plan to claim a deduction.