Are School Taxes Included in Escrow Payments?

Homeowners with a mortgage often make monthly payments that include more than just principal and interest. Many lenders require an escrow account to cover property-related expenses, ensuring these costs are paid on time. This simplifies budgeting by spreading large annual or semi-annual bills into manageable monthly amounts.

A common question is whether school taxes are included in these escrow payments. Understanding how these levies factor into your mortgage payment is important for financial planning.

Common Escrow Allocations

Lenders use escrow accounts to manage recurring homeownership expenses. The most common allocations include property taxes, insurance, and certain local levies.

Property Taxes

A primary expense covered through escrow is property taxes, assessed by local governments based on a home’s value. These taxes fund public services such as road maintenance, emergency responders, and municipal infrastructure. The amount owed varies by location. New Jersey has one of the highest average property tax rates in the U.S., exceeding 2% of a home’s assessed value, while Hawaii has rates below 0.5%.

Mortgage servicers estimate annual property tax obligations and divide the total into monthly installments, preventing homeowners from facing large lump-sum payments. If tax rates change or a home’s assessed value is adjusted, the escrow amount may be recalculated.

Insurance Costs

Homeowners insurance, another common escrow expense, protects against risks such as fire, theft, or natural disasters. Lenders require sufficient coverage since the home serves as collateral for the mortgage.

Some homeowners must also carry additional policies, such as flood insurance for properties in FEMA-designated flood zones. The National Flood Insurance Program (NFIP) mandates coverage in high-risk areas, with premiums varying based on elevation and proximity to water. Escrow accounts ensure these premiums are paid on time, preventing lapses in coverage.

School Levies

Many local governments impose school levies, a type of property tax that funds public education. These levies cover operational costs, teacher salaries, facility improvements, and extracurricular programs. The structure varies by district, with some areas relying on voter-approved levies that require periodic renewal.

For example, in Ohio, school districts frequently hold referendums where residents vote on additional funding measures, leading to fluctuations in tax rates. Since school levies are often included in the broader property tax assessment, they are typically collected through escrow. However, mortgage statements may not break down tax allocations, requiring homeowners to review local tax assessments for details.

School Levies and Your Monthly Payment

The portion of a mortgage payment allocated to school levies depends on how local governments structure property tax assessments. In many areas, school funding is a significant component of property taxes, meaning a portion of escrow payments supports public education.

Since school levies are often bundled with other municipal taxes, homeowners may not see a separate line item for them on mortgage statements. Instead, they are included in the total escrow calculation. The amount can fluctuate based on voter-approved measures, reassessments, or changes in district funding needs.

For example, Washington state allows school districts to propose enrichment levies that require periodic voter approval, which can lead to increases or decreases in tax obligations. If a new levy is passed or an existing one expires, the total property tax bill may be adjusted, impacting escrow payments.

Lenders estimate escrow contributions based on prior tax bills, but unexpected changes in school levies can result in a shortage or surplus. If a levy increase is larger than anticipated, homeowners may need to make up the difference through higher monthly payments or a lump-sum adjustment. Conversely, if tax rates decrease, the escrow portion of the mortgage payment may be lowered.

Adjusting Escrow Balances

When tax assessments or other escrow-covered expenses change, mortgage servicers adjust the escrow balance to ensure sufficient funds are available. These adjustments typically happen annually, but significant tax changes may prompt mid-year recalculations.

If an escrow shortage arises, homeowners may have to pay the difference in a lump sum or through higher monthly payments. An overage results in a refund or a reduction in future escrow contributions.

The Real Estate Settlement Procedures Act (RESPA) limits how much lenders can require homeowners to keep in escrow. Under RESPA, mortgage servicers may collect a cushion of up to two months’ worth of escrow payments to cover unexpected increases but cannot demand excessive reserves.

Homeowners should review their escrow analysis statements carefully to ensure adjustments align with local tax changes. If they dispute an adjustment, they can request a reassessment or provide documentation. For example, if a tax appeal successfully lowers a property’s assessed value, the homeowner can submit the revised tax bill to their mortgage servicer to adjust the escrow payment. Some states offer homestead exemptions or tax relief programs that reduce taxable property values, which should be factored into escrow calculations.

Reviewing Mortgage Statements for School Levies

Mortgage statements typically show total escrow contributions and disbursements but may not specify how much is allocated to school levies. Since school funding structures vary by jurisdiction, some municipalities issue separate tax bills for education, while others integrate school taxes into the general property tax assessment.

To verify whether school levies are covered through escrow, homeowners can compare their mortgage statement’s escrow disbursements with local tax authority billing records. Many counties provide online access to tax assessments, detailing the portion allocated to school funding.

If there is a discrepancy between the escrow payment and the tax bill, it may indicate an error in how the mortgage servicer calculated the escrow allocation. In some cases, tax bills are sent directly to homeowners despite being covered by escrow, leading to confusion about whether payment has already been made.

If School Levies Are Not Collected Through Escrow

In some cases, school levies are not included in escrow payments, requiring homeowners to manage these tax obligations separately. This can happen if a mortgage lender does not mandate an escrow account or if the homeowner has paid off their mortgage and is responsible for direct tax payments.

When school levies are billed separately, homeowners receive a tax statement from their local government or school district detailing the amount owed and the due date. Some jurisdictions allow for semi-annual or quarterly payments, while others require a single annual payment. Missing a deadline can result in interest charges or tax liens.

For example, in Pennsylvania, delinquent school taxes can accrue penalties of up to 10% and may eventually be sold as a tax lien, allowing investors to collect the debt or foreclose on the property. To prevent missed payments, homeowners can set up reminders or enroll in automatic payment plans if available.

Some local governments offer installment plans that mimic escrow structures. In Cook County, Illinois, homeowners can opt into a prepayment program that allows monthly contributions toward their property tax bill, reducing the financial burden when taxes come due. Additionally, tax deferral programs may be available for eligible seniors or low-income homeowners, allowing them to postpone school tax payments until the home is sold. Reviewing available payment options can help homeowners manage their school tax obligations effectively.