Universal School Choice Act Creates $10 Billion Federal Tax Credit for Private K-12 Scholarships Starting 2026

The newly proposed Universal School Choice Act sets up a massive federal tax credit program designed to funnel private donations into K-12 education scholarships. Starting in 2026, individuals and corporations can claim a tax credit for donating cash or securities to approved Scholarship Granting Organizations (SGOs). This isn’t a deduction; it’s a direct credit, meaning it reduces your tax bill dollar-for-dollar. For an individual, the credit is capped at the greater of $5,000 or 10% of their adjusted gross income, and corporations are capped at 5% of their taxable income. The big takeaway: the federal government is subsidizing private school and homeschooling costs through the tax code.

The $10 Billion Cap and the Race for Credits

This system isn't unlimited. Section 3 establishes a national volume cap of $10 billion annually for these tax credits. That $10 billion is initially split among states using a formula that heavily favors states with higher populations of children living below the poverty line (80% of the allocation is based on this metric). If you’re a taxpayer looking to claim the credit, you have to designate which state your donation is for. If a state doesn't use its full allocation by July 31st, the leftover credits are released nationwide on a first-come, first-served basis until the $10 billion runs out. For a busy person, this means if you wait too long to make your donation, you could miss out on the credit because the national cap was hit. It’s a literal race against time to capture a piece of that $10 billion.

What the Scholarship Money Can Cover

For families, the scope of what these scholarships can pay for is incredibly broad. It covers the usual suspects like tuition and fees, but it also includes books, instructional software, standardized test fees (like the SAT or AP exams), tutoring, and even transportation costs for approved activities. Crucially, the bill explicitly allows funds to be used for expenses related to home schooling and educational therapies for students with disabilities (Section 2). This means that a family that chooses to homeschool their kids could receive tax-credit-funded scholarships to cover curriculum costs or specialized tutoring, a significant change in how federal tax policy treats educational expenses.

Prioritizing Low-Income Families—With a Catch

One of the most important provisions is the prioritization rule for SGOs. When distributing scholarships, the organizations must prioritize returning students, then siblings of previous recipients, and finally, students from households below 500 percent of the poverty line in their state. While this is a clear nod toward helping lower-income families access these options, it’s worth noting that 500% of the poverty line is a relatively high income threshold. For example, 500% of the 2024 poverty line for a family of four is around $156,000. For families receiving the scholarship, Section 4 ensures the money is not counted as taxable income, which is a big win for maximizing the benefit.

Autonomy Over Accountability

Section 5 contains powerful language designed to shield the participating organizations and schools from government oversight. It explicitly states that no federal, state, or local government entity can “mandate, direct, or control” any aspect of how a participating SGO or private/religious school operates. This is the bill’s strong stance on autonomy. While it protects religious freedom and private operational choices, it also means that if you’re a parent relying on these scholarships, the schools and organizations you deal with are largely exempt from the typical regulatory scrutiny applied to public schools regarding curriculum, standards, or non-discrimination policies. This trade-off—access to private funds in exchange for reduced public accountability—is a critical element of the legislation.