National School Choice – American Federation for Children
Published on July 31, 2025
Original Article

What is National School Choice?

The federal tax credit scholarship legislation in H.R.1 – One Big Beautiful Bill Act represents the most ambitious school choice advancement in our nation’s history, aimed at expanding educational opportunities in all 50 states.

Congress included this critical school choice provision in the OBBA and on July 4, President Trump signed into law a national school choice tax credit!

The OBBA includes a 100% non-refundable federal tax credit that is permanent and uncapped.

Individual taxpayers who contribute up to $1700 to a non-profit scholarship granting organization can claim the credit.

A taxpayer cannot claim the federal tax credit and a federal charitable contribution for the same donation.

The amount allowed as a federal credit shall be reduced by the amount allowed as a State credit on any State tax return of the taxpayer. In a state with an existing scholarship tax credit program where a taxpayer receives a 100 percent non-refundable state credit, the taxpayer must make a separate contribution to receive the federal credit.

Contributions to scholarship granting organizations must be cash contributions.

States must “opt-in” for scholarship granting organizations who operate in the state to participate. Authority to opt-in is a Governor or individual agency or entity that is designated under state law to make this election on behalf of the state.

Student eligibility is 300 percent of median gross income by area, which covers approximately 90 percent of the K-12 students in every state.  Student must be eligible to enroll in a public elementary or secondary school.

A state that elects to participate shall annually submit a list to the Secretary of the Treasury of scholarship granting organizations that meet the requirements outlined in the federal law.

SGO requirements:

  • must be a 501(c)(3) organization, cannot be a private foundation;
  • 90 percent of income from qualified contributions must be spent on scholarships;
  • can only expend funds on qualified expenses (Section 530b of the federal code);
  • provide scholarships to 10 or more students at more than one school;
  • cannot earmark scholarships for an individual student;
  • has a scholarship preference for prior year students and siblings;
  • must verify student eligibility;
  • prevents co-mingling of qualified contributions with other amounts by maintaining one or more separate accounts.

The U.S. Treasury Department will issue rules for implementation of the law prior to its January 1, 2027 effective date.

Key Facts

  • The scholarship tax credit provision in OBBA is tax law, not education law, and there is no role for the U.S. Department of Education.
  • A federal scholarship tax credit is neither a voucher nor is it a federal program.
  • The scholarship tax credit has no effect on what the federal government or a state government provides for K-12 education.
  • A strict reading of the law would not allow a state to impose restrictions on which scholarship granting organizations can participate, how many scholarship granting organizations can participate, nor restrict the type of school where a family can use their scholarship.
  • Qualified expenses include: tuition, fees, tutoring, special needs services, curriculum materials, supplementary items and services, transportation, computer technology or equipment.
  • The term “school” in the qualified expenses section means any school which provides elementary education or secondary education (kindergarten through grade 12), as determined under State law.
  • Religious schools are expressly included in Section 530b.

Why do we need it?

School choice has made historic progress across more states than ever, but too many families are still locked out of opportunity. We need school choice in every state.

Tommy Schultz, CEO, American Federation for Children, after the historic expansion for school choice:

“Every state will have school choice soon. For a generation, our movement has fought to give all families, especially lower-income families, the freedom to choose the best K-12 education for their sons and daughters, and now President Trump has signed into law the single biggest advancement of that goal.

For far too long, the schooling unions and their allies have stood in the schoolhouse door blocking equal access to school choice. Their time of dominating America’s education system is over. This historic tax credit will supercharge school choice across America. We applaud President Donald Trump and champions in Congress for ensuring this generational expansion of educational freedom was a priority during the reconciliation process.

AFC will work to ensure that governors and state leaders listen to their constituents and bring educational freedom to every state in the nation, and to as many families as possible. We will continue to fight to ensure that this tax credit scholarship is well-implemented and expanded as soon as possible.”

How Does School Choice Help Students?

When publicly supported scholarships are accessible to students to use at the school of their choice, families win. All parents should have a wide range of high-quality educational options to choose from, regardless of income, which is the opportunity school choice unlocks. In states with existing private school choice offerings, the tax credit scholarship can be stacked on top of the state offering, increasing purchasing power for parents and helping more students. In states that lack these options, this legislation will create educational opportunity for those K-12 parents and students.

Full Text:

SEC. 25F. QUALIFIED ELEMENTARY AND SECONDARY EDUCATION SCHOLARSHIPS. (a) Allowance of Credit.–In the case of an individual who is a citizen or resident of the United States (within the meaning of section 7701(a)(9)), there shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the aggregate amount of qualified contributions made by the taxpayer during the taxable year. (b) Limitations.– (1) In general.–The credit allowed under subsection (a) to any taxpayer for any taxable year shall not exceed $1,700. (2) Reduction based on state credit.–The amount allowed as a credit under subsection (a) for a taxable year shall be reduced by the amount allowed as a credit on any State tax return of the taxpayer for qualified contributions made by the taxpayer during the taxable year. (c) Definitions.–For purposes of this section– (1) Covered state.–The term ‘covered State’ means one of the States, or the District of Columbia, that, for a calendar year, voluntarily elects to participate under this section and to identify scholarship granting organizations in the State, in accordance with subsection (g). (2) Eligible student.–The term ‘eligible student’ means an individual who– (A) is a member of a household with an income which, for the calendar year prior to the date of the application for a scholarship, is not greater than 300 percent of the area median gross income (as such term is used in section 42), and (B) is eligible to enroll in a public elementary or secondary school. (3) Qualified contribution.–The term ‘qualified contribution’ means a charitable contribution of cash to a scholarship granting organization that uses the contribution to fund scholarships for eligible students solely within the State in which the organization is listed pursuant to subsection (g). (4) Qualified elementary or secondary education expense.–The term ‘qualified elementary or secondary education expense’ means any expense of an eligible student which is described in section 530(b)(3)(A). (5) Scholarship granting organization.–The term ‘scholarship granting organization’ means any organization– (A) which– (i) is described in section 501(c)(3) and exempt from tax under section 501(a), and (ii) is not a private foundation, (B) which prevents the co-mingling of qualified contributions with other amounts by maintaining one or more separate accounts exclusively for qualified contributions, (C) which satisfies the requirements of subsection (d), and (D) which is included on the list submitted for the applicable covered State under subsection (g) for the applicable year. (d) Requirements for Scholarship Granting Organizations.– (1) In general.–An organization meets the requirements of this subsection if– (A) such organization provides scholarships to 10 or more students who do not all attend the same school, (B) such organization spends not less than 90 percent of the income of the organization on scholarships for eligible students, (C) such organization does not provide scholarships for any expenses other than qualified elementary or secondary education expenses, (D) such organization provides a scholarship to eligible students with a priority for– (i) students awarded a scholarship the previous school year, and (ii) after application of clause (i), any eligible students who have a sibling who was awarded a scholarship from such organization, (E) such organization does not earmark or set aside contributions for scholarships on behalf of any particular student, and (F) such organization– (i) verifies the annual household income and family size of eligible students who apply for scholarships to ensure such students meet the requirement of subsection (c)(2)(A), and (ii) limits the awarding of scholarships to eligible students who are a member of a household for which the income does not exceed the amount established under subsection (c)(2)(A). (2) Prohibition on self-dealing.– (A) In general.–A scholarship granting organization may not award a scholarship to any disqualified person. (B) Disqualified person.–For purposes of this paragraph, a disqualified person shall be determined pursuant to rules similar to the rules of section 4946. (e) Denial of Double Benefit.–Any qualified contribution for which a credit is allowed under this section shall not be taken into account as a charitable contribution for purposes of section 170. (f) Carryforward of Unused Credit.– (1) In general.–If the credit allowable under subsection (a) for any taxable year exceeds the limitation imposed by section 26(a) for such taxable year reduced by the sum of the credits allowable under this subpart (other than this section, section 23, and section 25D), such excess shall be carried to the succeeding taxable year and added to the credit allowable under subsection (a) for such taxable year. (2) Limitation.–No credit may be carried forward under this subsection to any taxable year following the fifth taxable year after the taxable year in which the credit arose. For purposes of the preceding sentence, credits shall be treated as used on a first-in first-out basis. (g) State List of Scholarship Granting Organizations.– (1) List.– (A) In general.–Not later than January 1 of each calendar year (or, with respect to the first calendar year for which this section applies, as early as practicable), a State that voluntarily elects to participate under this section shall provide to the Secretary a list of the scholarship granting organizations that meet the requirements described in subsection (c)(5) and are located in the State. (B) Process.–The election under this paragraph shall be made by the Governor of the State or by such other individual, agency, or entity as is designated under State law to make such elections on behalf of the State with respect to Federal tax benefits. (2) Certification.–Each list submitted under paragraph (1) shall include a certification that the individual, agency, or entity submitting such list on behalf of the State has the authority to perform this function. (h) Regulations and Guidance.–The Secretary shall issue such regulations or other guidance as the Secretary determines necessary to carry out the purposes of this section, including regulations or other guidance– (1) providing for enforcement of the requirements under subsections (d) and (g), and (2) with respect to recordkeeping or information reporting for purposes of administering the requirements of this section. (2) Conforming amendments.– (A) Section 25(e)(1)(C) is amended by striking “and 25D” and inserting “25D, and 25F”. (B) The table of sections for subpart A of part IV of subchapter A of chapter 1 is amended by inserting after the item relating to section 25E the following new item: “Sec. 25F. Qualified elementary and secondary education scholarships.”. (b) Exclusion From Gross Income for Scholarships for Qualified Elementary or Secondary Education Expenses of Eligible Students.– (1) In general.–Part III of subchapter B of chapter 1 is amended by inserting before section 140 the following new section: “SEC. 139K. SCHOLARSHIPS FOR QUALIFIED ELEMENTARY OR SECONDARY EDUCATION EXPENSES OF ELIGIBLE STUDENTS. (a) In General.–In the case of an individual, gross income shall not include any amounts provided to such individual or any dependent of such individual pursuant to a scholarship for qualified elementary or secondary education expenses of an eligible student which is provided by a scholarship granting organization. (b) Definitions.–In this section, the terms ‘qualified elementary or secondary education expense’, ‘eligible student’, and ‘scholarship granting organization’ have the same meaning given such terms under section 25F(c).”. (2) Conforming amendment.–The table of sections for part III of subchapter B of chapter 1 is amended by inserting before the item relating to section 140 the following new item: “Sec. 139K. Scholarships for qualified elementary or secondary education expenses of eligible students.”. (c) Effective Date.– (1) In general.–Except as otherwise provided in this subsection, the amendments made by this section shall apply to taxable years ending after December 31, 2026. (2) Exclusion from gross income.–The amendments made by subsection (b) shall apply to amounts received after December 31, 2026, in taxable years ending after such date.

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