U.S. Treasury releases rules for national school choice tax credit

The U.S. Department of the Treasury and the Internal Revenue Service (IRS) have released proposed regulations for the Education Freedom Tax Credit, a nationwide school choice initiative set to launch on January 1, 2027. The program allows individual taxpayers to claim a nonrefundable federal tax credit of up to $1,700 for cash donations made to qualified Scholarship Granting Organizations (SGOs). Married couples filing jointly may claim a combined credit of up to $3,400. Unused credits can be carried forward for up to five years.

These scholarships are intended to cover K-12 educational expenses, including private school tuition, tutoring, books, supplies, and services for students with special needs. While the program is designed to support private education, it can also benefit students in public or charter schools through tutoring and other services. Currently, 30 states have opted into the program, while others, including New York and California, have indicated they are awaiting official guidelines before deciding whether to participate.

The Treasury Department estimates that by 2030, more than 11 million taxpayers could contribute approximately $26 billion annually to the program. The proposed rules also establish frameworks for verifying household income, managing SGO registration, and preventing fraud and abuse within the scholarship system.