Federal Education Freedom Tax Credit Rule Proposed by Treasury and IRS

The U.S. Treasury Department and the Internal Revenue Service released a proposed rule establishing the Education Freedom Tax Credit, a federal scholarship program slated to launch at the start of 2027. The rule creates a 100 % tax credit for individuals who donate up to $1,700 (or $3,400 for a married couple filing jointly) to state-approved scholarship-granting organizations (SGOs). Donors receive a credit equal to the amount contributed, and the funds are used to award scholarships to K-12 students for private-school tuition, homeschooling costs, tutoring, special-education therapies, books, computers and other education-related expenses.

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The credit was enacted as part of President Donald Trump’s 2022 tax-cut legislation, often referred to as the “One Big Beautiful Bill.” It expands a long-standing state-level school-choice movement by allowing taxpayers nationwide to fund scholarships in any participating state, regardless of residency. Existing state programs have operated for decades, primarily in conservative-led states, but the federal credit differs by not requiring students to leave public schools to qualify.

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• Participating states: As of mid-September, 30 states—including Alabama, Alaska, Arkansas, Colorado, Florida, Georgia, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, North Carolina, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, West Virginia and Wyoming—have indicated they will join. Governors in Arizona, Minnesota, Wisconsin and Oregon have declined participation.

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• Eligibility: Up to 96 % of children in participating states could qualify, covering families with incomes up to three times the area median income.

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• Funding projections: Treasury and IRS estimates project 2.2 million scholarships per year, directing roughly $26 billion annually by 2030. More than 11 million taxpayers are expected to contribute, supporting 600-700 SGOs.

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• Comparison: The projected annual outlay would exceed the Education Department’s Title I budget for fiscal 2026 ($18.4 billion).

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U.S. Treasury and Education Department officials emphasized that participating states may not impose additional restrictions on the types of schools or expenses covered, and that streamlined eligibility verification will be available for foster children, low-income families and students receiving special-education services. States must submit lists of qualifying SGOs by early 2027 and will be subject to annual independent financial reviews.

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Jacqueline Rodriguez, CEO of the National Center for Learning Disabilities, warned that the program could strip students with disabilities of their federally protected right to a free and appropriate public education under the Individuals with Disabilities Education Act. Civil-rights groups, including NCLD and fifteen partner organizations, have sent a joint letter urging governors to opt out, arguing the initiative primarily benefits private schools at the expense of public-school funding. Governors of Arizona, Minnesota, Wisconsin and Oregon have publicly declined participation, citing concerns that the credit diverts resources from already underfunded public systems.

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Sources agree on the list of participating states and the projected funding levels, but they differ on the timeline for public outreach. The Treasury has not detailed how it will inform taxpayers and families about scholarship availability, leaving a gap in understanding the program’s implementation strategy.

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• “Education freedom is the key to unlocking opportunity and success for our next generation of students,” — U.S. Secretary of Education Linda McMahon

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• “It is so deeply troubling that this program, funded with federal tax dollars, will be implemented without regulation or further clarification of rights and protections for students most marginalized — those with disabilities,” — Jacqueline Rodriguez

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