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New Treasury Rules Detail How the Education Freedom Tax Credit program Will Work
The U.S. Department of the Treasury released new guidance Thursday for participating states, scholarship-granting organizations and taxpayers as the federal scholarship tax credit program prepares to take effect in January. Created through President Donald Trump’s massive tax and spending law…
Key points
- The federal Education Freedom Tax Credit program launches in January, offering a dollar-for-dollar tax credit of up to $1,700 for individual donors.
- Thirty states have already opted into the program, which will provide K-12 scholarships to an estimated 28 million eligible children.
- Scholarship-granting organizations must operate as nonprofits, undergo annual audits, and spend at least 90% of their revenue on student scholarships.
NewsWK — Families across the United States are preparing for a massive expansion of educational choices. Recently, the federal government released the official rules for a landmark school choice initiative. This program will officially launch in January.
Why it matters
This program represents a historic shift in how the federal government supports education. As a result, it empowers parents with direct control over their children’s schooling options. Taxpayers can now directly fund K-12 scholarships. In turn, these funds will help millions of students access private tuition, tutoring, and other vital services.
How does the program work?
The Education Freedom Tax Credit program offers a dollar-for-dollar federal tax credit. Specifically, individuals can claim up to $1,700 for donations to certified scholarship organizations. Married couples filing jointly can claim up to $3,400. In addition, taxpayers can donate to eligible groups in any participating state, regardless of their residence.
Congress established this initiative through the federal tax and spending law passed in 2025. Unlike traditional deductions, a tax credit reduces a taxpayer’s tax liability dollar-for-dollar. Therefore, this structure provides a powerful incentive for charitable giving. The funds will go directly to nonprofit Scholarship-Granting Organizations, known as SGOs. Then, these groups distribute the money directly to families.
Primarily, the scholarships help families cover private school tuition. However, public school students can also benefit from the funds. For instance, the money can pay for tutoring, books, and basic school supplies. Furthermore, families can use it for extended-day programs and special education services.
Which school voucher tax credit states have opted in?
Currently, 30 school voucher tax credit states have officially joined the program. To participate, states had an Internal Revenue Service opt-in deadline of January 1, 2026. Furthermore, these participating states must submit their approved lists of scholarship organizations by February 15, 2026. This timeline ensures a swift rollout.
The participating states span across the entire nation. Indeed, this widespread adoption reflects strong local support for educational freedom. The current list of participants includes:
- Alabama, Alaska, Arkansas, Florida, and Georgia
- Idaho, Indiana, Iowa, Kansas, and Kentucky
- Louisiana, Mississippi, Missouri, Montana, and Nebraska
- Nevada, New Hampshire, North Carolina, North Dakota, and Ohio
- Oklahoma, South Carolina, South Dakota, Tennessee, and Texas
- Utah, Virginia, West Virginia, and Wyoming
In addition, Colorado is on the list of approved states. Meanwhile, several other states are still debating their participation. For example, New York Governor Kathy Hochul indicated she plans to participate. However, she wants to review the final federal regulations first.
In contrast, several Democratic governors have firmly rejected the program. Specifically, governors in Hawaii, Minnesota, New Mexico, and Oregon announced their states will not participate.
Political battles have also played out in several state legislatures. For example, lawmakers in North Carolina and Kansas successfully overrode gubernatorial vetoes to join the program. Conversely, vetoes by the governors of Arizona and Wisconsin successfully blocked participation in those states.
What is the federal school voucher program eligibility?
Federal school voucher program eligibility is remarkably broad across participating states. Specifically, it covers students whose household income reaches up to 300% of their local median income. Treasury officials estimate that roughly 95% of American children live in eligible households. Consequently, millions of families can access these new education funds.
Because of this broad eligibility, middle-class families can access these scholarships alongside low-income households. In total, Education Department officials estimate that about 28 million children in the 30 participating states qualify. Therefore, the program reaches a vast majority of K-12 students in those areas.
For families who choose homeschooling, the federal rules defer to state guidelines. Thus, the program treats homeschooled students according to how their specific state legally defines homeschooling.
What are the federal SGO donation tax credit rules?
Under strict federal rules, participating scholarship organizations must operate as 501(c)(3) nonprofits. They must also undergo regular annual financial audits. In addition, organizations must direct at least 90% of their total revenue straight to student scholarships. Therefore, this requirement ensures that donated funds directly benefit participating families.
The Treasury Department established these guidelines to prevent fraud and maintain accountability. For this reason, SGOs must keep all qualified donations in separate accounts. Moreover, they cannot earmark donations for specific individual students.
Additionally, each SGO must serve at least 10 students who do not all attend the same school. The organizations must also verify household income and family size before awarding funds.
To ensure stability for students, SGOs must prioritize renewal applicants. First, students who received a scholarship in the previous school year get top priority. Next, their siblings receive priority consideration.
States will use the annual audits to monitor these groups closely. If an organization fails to meet federal guidelines, the state can remove it from the program. Ultimately, this oversight process helps prevent duplicate payments and protects taxpayer dollars.
What is the long-term outlook for the program?
Treasury officials project rapid growth for the program over the next few years. By 2030, the agency expects up to 700 participating SGOs. In addition, officials estimate nearly $26 billion in annual contributions from more than 11 million taxpayers. These contributions will fund millions of scholarships nationwide.
In fact, this massive influx of funding could support up to 2.2 million scholarships annually. As the program launches this January, supporters believe it will foster healthy competition. Ultimately, advocates expect the initiative to improve educational outcomes nationwide.
This article was produced with the assistance of AI and reviewed by our editorial team.
Sources
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