The Trump Administration Advances the Establishment of America’s First Nationwide School Choice Program

Treasury and IRS Issue Proposed Regulations to Implement the Education Freedom Tax Credit

WASHINGTON—The U.S. Department of the Treasury and the Internal Revenue Service issued proposed regulations to implement the new Federal Scholarship Tax Credit under section 25F, commonly known as the Education Freedom Tax Credit, the first federal tax credit supporting private contributions for K-12 scholarships. Under the proposed regulations, eligible taxpayers may claim an annual credit of up to $1,700 for qualifying contributions, or up to $3,400 for married couples filing jointly. Treasury and the IRS also issued companion temporary regulations to establish key procedures for states and Scholarship Granting Organizations to prepare for the launch of the tax credit on January 1, 2027.

The proposed regulations advance the Administration’s priorities of expanding educational freedom, restoring parental rights, returning power to the states, and putting American students first.

“Under President Trump, this Administration continues to transform America’s education system to meet the needs of each student,” said U.S. Secretary of the Treasury Scott Bessent. “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. Thirty states have already opted in, and we encourage all 50 states to participate so every American student and family can benefit.”

“Education freedom is the key to unlocking opportunity and success for our next generation of students,” said U.S. Secretary of Education Linda McMahon. “The Education Freedom Tax Credit, the largest expansion of school choice in history, will supercharge those opportunities for millions of children. I am profoundly grateful to President Trump and our partners at Treasury for ensuring that every child has access to the education they need, not one limited by ZIP code, family income, or government‑imposed barriers.”

“The IRS is committed to helping American families by implementing this important new law that gives them freedom of choice when deciding how to educate their children,” said IRS Chief Executive Officer Frank J. Bisignano. “To further that goal, these rules provide states, scholarship-granting organizations, and taxpayers with the clarity they need to prepare for this new education tax credit.”

THE EDUCATION FREEDOM TAX CREDIT

Beginning in 2027, the Education Freedom Tax Credit will expand educational opportunity by encouraging private contributions to participating Scholarship Granting Organizations (SGOs). Individual taxpayers may claim a nonrefundable federal income tax credit of up to $1,700 for qualified cash contributions to eligible SGOs and married taxpayers filing jointly may claim a combined credit of up to $3,400, which will use those funds to provide scholarships to eligible elementary and secondary school students. Participating states may opt in to the program and identify eligible SGOs. Taxpayers may contribute to an eligible SGO regardless of their state of residence, allowing them to support qualifying scholarship organizations across participating states.

The credit is designed to support scholarships for K–12 education expenses, helping families access educational options that meet their children’s needs. Scholarships may support a broad range of qualified elementary and secondary education expenses, including private-school tuition, academic tutoring, special-needs services, books, supplies, computers and other equipment, and other qualifying expenses connected with a student’s enrollment or attendance.

By 2030, Treasury and the IRS estimate that the program could support 600 to 700 SGOs, with more than 11 million taxpayers making nearly $26 billion in qualified contributions annually and funding as many as 2.2 million scholarships each year.

PROPOSED REGULATIONS

The proposed regulations provide detailed rules intended to make the new credit accessible to families and administrable for taxpayers, states, and SGOs while protecting scholarship funds from fraud and abuse.

The regulatory package addresses:

Increasing Access for Students: The proposed regulations provide rules for applying the statutory household-income limitation and would generally disregard non-cash items, such as imputed return on home equity. They also provide streamlined eligibility verification rules for certain families participating in needs-based programs, foster children, and certain students receiving tutoring or special-needs services in low-income areas. Treasury and IRS estimate that, under the proposed rules and safe harbors, approximately 96 percent of children in participating states would be eligible to receive section 25F scholarship funds.
Expanding Educational Choice: The proposed regulations provide that participating states would not be permitted to impose SGO operating requirements that are more restrictive than those established by section 25F, including restrictions based on the type of school scholarship recipients may attend or the types of qualified education expenses scholarships may fund. The proposed regulations also would not permit a State to use discretionary certification standards to exclude otherwise qualifying SGOs.
Expanding Opportunities for Scholarship Organizations and Families: The proposed rules provide a framework for multistate SGOs, including an operational requirement safe harbor for qualifying organizations whose activities are at least 85 percent scholarship-granting activities. Treasury and IRS estimate that this safe harbor could enable approximately 450 additional organizations to participate and increase qualified contributions by up to $3 billion annually.
Ensuring Taxpayers Can Access the Maximum Credit Allowed by Law: The proposed regulations provide a taxpayer-favorable ordering rule for individuals who may qualify for both state tax credits and the new federal credit. They also provide rules for carrying unused section 25F credits forward for up to five years and generally permit taxpayers to rely on an organization’s inclusion on the IRS SGO list when making a contribution.
Protecting Taxpayers and Scholarship Funds: The proposed and temporary regulations establish reporting, verification, and audit requirements designed to prevent duplication, improper payments, and other fraud or abuse. They provide for IRS portals for participating states and SGOs, unique donor numbers that avoid requiring SGOs to collect donors’ Social Security numbers, annual SGO reporting and audits, and procedures for removing organizations that fail to satisfy applicable requirements.

COMPANION TEMPORARY REGULATIONS

The companion temporary regulations provide states and SGOs with rules they need now to prepare for 2027, including procedures for state elections and certification of SGOs, electronic registration, donor acknowledgements, and reporting of qualified contributions. These procedures are intended to give taxpayers certainty that contributions are being made to qualifying organizations and to give states and SGOs sufficient time to establish the systems necessary for the incentive’s launch. Taxpayers, states, and SGOs may rely on the proposed regulations for qualified contributions beginning January 1, 2027.

Treasury and IRS previously sought public input on implementation of section 25F and previewed the forthcoming regulations in June. The proposed regulations reflect stakeholder feedback received during that process on issues including student eligibility, SGO operations, state administration, reporting, and program integrity.

Section 25F was enacted in 2025 and applies to taxable years ending after December 31, 2026. The credit is available for qualifying cash contributions to SGOs in states that voluntarily elect to participate. An SGO generally must be a section 501(c)(3) public charity, maintain qualified contributions separately, satisfy statutory scholarship and operational requirements, and be included on the applicable state’s SGO list.

Rules: Federal Scholarship Tax Credit

Proposed Rules: Federal Scholarship Tax Credit

A fact sheet on the Education Freedom Tax Credit is available here.

Learn more about the participating states here.

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