The U.S. Treasury Department on Thursday finalized regulations for the Education Freedom Tax Credit, a first-of-its-kind federal school choice initiative set to launch on January 1, 2027.
The program allows married couples filing jointly to claim a dollar-for-dollar federal tax credit of up to $3,400 for donations to scholarship-granting organizations (SGOs). Individual taxpayers may receive a credit of up to $1,700 for similar donations. The credits are nonrefundable, meaning they reduce tax liability but do not result in direct payments to taxpayers.
The Treasury and Internal Revenue Service estimate the program will cost approximately $26 billion annually and fund up to 2.2 million scholarships per year by 2030. Donations to SGOs will be used to provide scholarships covering tuition, academic services, supplies, and other educational expenses for K-12 students, including those in public schools, private schools, or homeschooling programs.
Eligibility and Participation
Nearly 96% of schoolchildren in at least 30 states will qualify for the scholarships, according to the Treasury Department. The program is open to students regardless of whether they attend public, private, or homeschool settings. Funds from SGOs can be used for a range of expenses, including books, tutoring, technology, and extracurricular materials.
Implementation Timeline
The regulations were released Thursday, giving state officials until January 1, 2027, to decide whether to participate. States that opt out will forfeit access to federal funding tied to the program. The Treasury Department has framed the initiative as a way to expand educational options for families, while critics argue it could divert resources from traditional public schools.
How the Program Works
Taxpayers who donate to eligible SGOs receive a federal tax credit equal to their contribution, up to the specified limits. SGOs then distribute scholarships to students based on need or other criteria established by the organizations. The federal government reimburses SGOs for the scholarship amounts provided to students.
The program was established as part of the 2025 Republican tax and spending bill, marking the first time the federal government has created a nationwide school choice initiative. Supporters describe it as a tool to empower families, while opponents warn it could exacerbate inequities in education funding.