Sponsors (28)
Introduced January 28, 2025 by Adrian Smith · Last progress January 28, 2025
The bill expands federally backed, tax-favored K–12 scholarships and donor incentives to increase school choice and reduce families' out-of-pocket costs, but it does so at the cost of federal revenue, potential reductions in public-school support and accountability, and new administrative and equity concerns.
Low- and moderate-income families (including those ≤300% AMGI) and other parents/students gain access to scholarships to pay K–12 tuition and related expenses, increasing school choice and lowering out-of-pocket education costs.
Scholarships (for parents and dependents) are excluded from taxable income and the law applies retroactively to amounts after Dec 31, 2024, making scholarships more valuable and providing clarity for recent tax years.
Donors to scholarship-granting organizations can claim a federal nonrefundable tax credit (up to $5,000 or 10% of AGI), lowering the after-tax cost of contributions and potentially increasing private funding for scholarships.
The tax credits and tax-free treatment of scholarships will reduce federal revenue (up to about $5 billion per year 2025–2028 and ongoing revenue loss), which could increase deficits or crowd out other federal spending.
The program shifts public tax benefits toward private (including faith-based) K–12 education, which may reduce financial and political support for traditional public schools and weaken uniform accountability for public education funding.
Because scholarships and tax credits are limited by a first-come, first-served federal cap, eligible families may not receive scholarships if caps fill early, leaving some low-income families without promised assistance.
Based on analysis of 4 sections of legislative text.
Creates a new federal nonrefundable tax credit for individuals who give money or marketable securities to scholarship granting organizations (SGOs) that provide K–12 scholarships for eligible students, and excludes those scholarship amounts from a dependent’s taxable income. The credit is limited per taxpayer (the greater of 10% of adjusted gross income or $5,000), subject to a $5 billion annual federal volume cap for calendar years 2025–2028 with state set‑asides and first‑come, first‑served allocation rules. The law sets SGO eligibility and oversight rules, carries credit amounts forward up to five years, and forbids government control or discriminatory conditions on participation by private and religious schools while giving parents a right to intervene in legal challenges. Applies to taxable years (and scholarship amounts) after December 31, 2024. It changes the tax code, creates new reporting and administrative duties for Treasury and SGOs, and affects families, SGOs, private schools, and state tax administration and budgets.