Treasury’s New School Choice Rules: Give $1,700 to Scholarships, Cut Your Taxes $1,700

Leave a CommentTreasury’s New School Choice Rules: Give $1,700 to Scholarships, Cut Your Taxes $1,700Budget, Economics

Starting January 1, Americans will be able to send part of their federal tax money to a K-12 scholarship fund instead of to the IRS. This week the Treasury Department released the rules that will make it work.

On October 1, Treasury and the IRS issued proposed regulations for the new Education Freedom Tax Credit. Treasury Secretary Scott Bessent called it “America’s first nationwide school choice program.”

How the credit works

The idea is simple. You donate cash to an approved nonprofit called a Scholarship Granting Organization, or SGO. You then get a dollar-for-dollar federal tax credit, according to the IRS.

  • Single filers can claim up to $1,700 a year.
  • Married couples filing jointly can claim up to $3,400.

Because it is a credit and not a deduction, a $1,700 gift can cut your federal tax bill by $1,700, as long as you owe at least that much. K-12 Dive reported that the credit cannot exceed your tax liability.

The SGO then turns those donations into scholarships for K-12 students. According to the IRS, the money can cover private school tuition, tutoring, special services, books, computers and related costs. Public school students can use scholarships for things like tutoring and after-school programs, Education Week reported.

One limit: parents cannot steer their own donation to their own child, K-12 Dive noted.

Who can get a scholarship

Families earning up to 300% of their area’s median income qualify, according to Education Week. That line runs from $107,100 in Oglala Lakota County, South Dakota, to $616,500 in Santa Clara County, California.

Treasury estimates that about 96% of children in participating states would qualify.

Homeschoolers’ eligibility depends on state law. Education Week reported that 22 states treat home schools as private schools, so students there should qualify. The Home School Legal Defense Association’s Will Estrada said the IRS “took a very careful approach” but warned some homeschoolers will be disappointed.

States have to opt in

The program only works in states that sign up. The IRS said 30 states had already enrolled. Education Week put the number of states in or on track at 31. Wisconsin and Oregon have said they will not take part, K-12 Dive reported.

Here is the good news for donors in holdout states: you can give to an SGO in any participating state, no matter where you live, according to the IRS.

The proposed rules also stop states from loading extra red tape onto SGOs. Under the rules, a state cannot require private schools to take state tests or limit scholarships to public school students, Education Week reported.

The big numbers

Treasury projects that by 2030:

  • More than 11 million taxpayers will give.
  • Contributions will reach nearly $26 billion a year.
  • 600 to 700 SGOs will operate.
  • Up to 2.2 million scholarships will be awarded each year.

Critics and next steps

Teachers union officials and some disability advocates oppose the program. A leader at the National Center for Learning Disabilities said it is “deeply troubling” that it will start without more protections for students with disabilities.

A 60-day public comment period opened October 1, and a public hearing is planned for December. States must submit their lists of approved SGOs by February 15, 2027. The IRS still owes guidance on exactly which expenses qualify, Education Week reported.

The bottom line

For decades, school choice has depended on where you live. A family in a state with strong school choice laws had options. A family in a state without them often had none. This credit changes that by letting ordinary taxpayers, not Washington bureaucrats, decide where a slice of their tax money goes.

It also does it without creating a new federal spending program. Parents and donors drive the money, and private nonprofits hand out the scholarships. The rules protect that design by keeping states from smothering SGOs and private schools in new mandates.

If you owe federal income tax, mark January 1 on your calendar. Check whether your state has opted in, find a trusted SGO, and consider sending your $1,700 to a child’s education instead of the Treasury. And if your governor is one of the holdouts, let them know you want your state in.

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