The Treasury Department and the IRS on Thursday issued rules for the first federal tax credit for donations that pay for K-12 scholarships, and states that join the program may not narrow it. Temporary regulations that take effect Dec. 1 bar a participating state from holding scholarship organizations to terms stricter than the statute, such as limits on the type of school a recipient may attend or on the education expenses a scholarship may cover.
A companion proposed rulemaking fills in the rest of the program, which Treasury calls the Education Freedom Tax Credit. Starting in 2027, an individual can claim a nonrefundable credit of up to $1,700 a year for cash donated to an approved scholarship granting organization, and unused credits can be carried forward for up to five years. The proposal treats each spouse on a joint return as a separate taxpayer, so a married couple could claim up to $3,400 if each gives $1,700. Rep. Adrian Smith, a Nebraska Republican, had introduced a bill to give couples a credit of that size.
The money can go to private school tuition as well as tutoring, special-needs services, books, supplies, computers and other costs tied to a child's enrollment or attendance, Treasury said. A student qualifies by being eligible to attend a public school in the state and living in a household whose income does not exceed 300 percent of the area's median gross income. An analysis by EdChoice, an advocacy group, that Education Week cited puts the ceiling anywhere from $107,100 in Oglala Lakota County, S.D., to $616,500 in Santa Clara County, Calif. Treasury estimates that about 96 percent of children in participating states would be eligible.
Treasury and the IRS project that by 2030 the program could support 600 to 700 scholarship organizations, with more than 11 million taxpayers giving nearly $26 billion a year and funding as many as 2.2 million scholarships. The program's most enthusiastic backers hope giving on that scale could rival long-standing federal grant programs such as Title I for low-income students, while critics worry its design will favor private education over public school systems, Education Week reported.
Only students in states that elect to participate can receive the scholarships. For 2027, the temporary rules give a state until Jan. 1 to file an advance election and until Feb. 15 to submit its list of approved scholarship organizations. Treasury Secretary Scott Bessent said 30 states have already opted in, and he encouraged all 50 to take part. Education Week counts 31 states that have joined or plan to, most of them led by Republican governors, and reported that some governors were waiting to see the regulations before deciding.
Some Democratic policymakers had sought to approve only scholarship organizations that serve public school students or children from low-income families, Education Week reported. They also wanted antidiscrimination and academic accountability requirements for the groups and for the schools that take scholarship money. Treasury and the IRS wrote that the prohibition responds to stakeholder concern that allowing states to add requirements, or to turn away a group that otherwise qualifies, "could lead to arbitrary determinations and improper discrimination." States must still impose application, documentation and financial reporting requirements reasonably tailored to confirm that an organization meets the law's operating requirements and to help prevent and detect fraud. The regulations also say nothing in them changes a state's obligations under other federal and state law, including the Individuals with Disabilities Education Act.
EdNC, a nonprofit news site in North Carolina, wrote that the provision means Democratic governors cannot bar donations aimed at private schools or at students who are not from low-income families. North Carolina joined in June after the legislature overrode Gov. Josh Stein's veto, and Stein said then that he was working on a way for residents to steer their federally reimbursed donations to scholarship groups that directly benefit public school students. School districts in Clark County, Nev., Denver and Gwinnett County, Ga., are among those that have moved to partner with scholarship organizations.
"The Education Freedom Tax Credit marks a new chapter in educational freedom and opportunity by establishing America's first nationwide school choice program and empowering states to give students and families more options," Bessent said. Education Secretary Linda McMahon called it "the largest expansion of school choice in history." IRS Chief Executive Officer Frank J. Bisignano said the rules give states, scholarship organizations and taxpayers "the clarity they need to prepare for this new education tax credit."
The temporary rules also require scholarship organizations to register through an IRS portal, give each donor an acknowledgment carrying a unique donor number and report contributions to the IRS, the Journal of Accountancy reported. Treasury said the donor numbers spare the organizations from collecting donors' Social Security numbers, and that the package requires annual reporting and audits and sets procedures for removing groups that fail to meet the requirements.
The National Education Association criticized the package the same day. "Instead of helping families make ends meet, the Trump administration is once again putting its thumb on the scale for private school vouchers at the expense of the public schools that serve 90% of America's students," said Princess Moss, the union's president. The union said the guidance limits "states' ability to protect students or ensure meaningful benefits for public schools." In Congress, Sens. Mark Kelly, an Arizona Democrat, and Mazie Hirono, a Hawaii Democrat, have filed legislation to repeal the program.
The agencies will take comments on the proposed regulations through Dec. 1 and have set a public hearing for Dec. 15, which will be canceled if no outlines of testimony arrive by that deadline. Treasury said taxpayers, states and scholarship organizations may rely on the proposed rules for contributions starting Jan. 1, and the proposal says the agencies intend to issue guidance on what counts as a qualified expense and a school "as soon as possible."