Public Schools, Explained: How They’re Funded and Taxed

How American public schools are managed, funded, and taxed can be confusing to some. Many wonder if public schools pay taxes.

Although paying taxes may not be the fun part of life, tax is important for public programs. Americans are subject to a variety of tax types, including income tax, sales tax, property tax, and capital gains tax.

Public schools are mostly funded with tax revenue collected at the state level. This includes sales and property tax. (Property tax applies on real estate assets, such as residential houses, offices, and land. When you purchase a family home with a mortgage, the lender usually includes the property tax in your monthly payment.)

Local taxes also support public services, such as road maintenance and law enforcement. Whereas state governments foot most of the bills for local public schools, the federal government also provides some support.

As teachers are subject to income tax, public schools are required to withhold and remit as tax a portion of their salaries. In that sense, public schools are taxed through payroll tax. That could change, however, as some states may begin exempting police officers and other public service workers, such as teachers, from taxes.

In some cases, public schools are subject to sales tax, but there there are occasional sales tax breaks for school supplies, such as textbooks, computers, and sporting equipment. Public schools' tax treatment usually varies across states.

Whereas public schools must contend with payroll tax and sometime sales tax, there are tax types they don’t have to worry about. School buildings aren’t subject to property tax, and public schools aren’t charged income tax on money they may generate through certain activities.