Will ESA Funds Need to be Reported as Taxable Income?

For Iowa tax purposes, ESA funds are not taxable income if the funds are used for eligible educational expenses (e.g., tuition and fees, tutoring). See Eligible and Ineligible Expenses.

For federal tax purposes, ESA funds are treated differently. ESA funds used for tuition and fees are not taxable. However, ESA funds used for other purposes are considered taxable.