New Bill Proposes Tax Credits Up to $5K for Charter School Donations, Sets $5B Annual Cap Starting 2026

Starting after December 31, 2025, a new federal proposal, the High-Quality Charter Schools Act, aims to encourage private donations to specific charter schools by offering a significant tax credit. If passed, individuals could claim a credit for 75% of their cash or marketable securities contributions to eligible charter organizations, capped at the greater of $5,000 or 10% of their adjusted gross income for the year. The core purpose is straightforward: drive more private funding towards the creation and expansion of charter schools identified as high-performing.

Cashing In: How the Credit Works

So, how does this actually play out for your taxes? If you donate $2,000 in cash to an eligible charter school organization, you could potentially reduce your tax bill by $1,500 (75% of $2,000), provided it doesn't exceed your personal cap ($5k or 10% AGI). Keep in mind, you can't double-dip; if you claim this credit, you can't also deduct the same amount as a standard charitable contribution under section 170. If the credit you're eligible for is more than your tax liability for the year, the unused portion can be carried forward for up to five years. However, there's a national limit: the total credits claimed across the country can't exceed $5 billion annually, starting in 2026. Each state gets an initial $10 million allocation from this pool, with the rest available nationally on a first-come, first-served basis based on donation date. The Treasury is tasked with building a real-time tracker for this.

The Eligibility Hurdle: Which Schools Make the Cut?

Not every charter school qualifies for these donor benefits. An 'eligible charter school organization' must be a registered 501(c)(3) public charity (not a private foundation). It needs to be either a charter management organization (CMO) or a charter school that has previously received specific federal grants (under ESEA Section 4305(b)) or be designated by its state as being in the top 10% for student performance. This state-level designation introduces a potential layer of subjectivity, as the criteria for 'top performance' might vary. These organizations also face operational rules: they must keep separate accounts for these contributions and undergo annual financial audits by independent CPAs.

Follow the Money: Spending Rules and Oversight

The bill sets rules for how these funds must be used. Essentially, 100% of the qualified contributions received in a year must be spent on creating or expanding charter schools by the beginning of the fifth year after receipt. Organizations can deduct 'reasonable administrative expenses' – with a 'safe harbor' deeming 10% or less as reasonable – and carry over up to 15% of contributions to the next year. Failure to meet these spending requirements means contributions to that organization in the following year won't qualify for the tax credit. While there are spending deadlines, the bill allows funds 'formally committed' for multi-year projects to count as expended, which could be a loophole if not closely monitored. Furthermore, Section 5 explicitly aims to protect these organizations from government control simply because they participate in this program, emphasizing 'maximum freedom'. This raises questions about the balance between autonomy and accountability, potentially reducing oversight compared to traditionally funded public schools.