Keep Public Funds in Public Schools Act Ends Scholarship Tax Credits and Excludes Income Protections by 2027

The Keep Public Funds in Public Schools Act of 2026 aims to redirect the flow of educational funding by dismantling two specific tax perks that currently favor private scholarship programs. Starting after December 31, 2026, the bill would officially repeal Section 25F of the Internal Revenue Code, which allows individuals to claim a tax credit for donating to scholarship-granting organizations (SGOs). Additionally, it strikes down Section 139K, meaning any scholarship money received from these organizations would no longer be excluded from a taxpayer's gross income. In short, the bill seeks to tighten the tax code to ensure that money incentivized by the government stays within the traditional public school system.

The Cost of Giving and Receiving

This legislation hits both ends of the charitable pipeline. For the donor—perhaps a professional looking to offset their tax bill while helping a local student—the incentive to give to an SGO disappears. Under SEC. 2, that dollar-for-dollar credit against what you owe the IRS is gone. For the student or family receiving the help, the impact is even more direct. Currently, if a middle-income family receives a $5,000 scholarship from an SGO to help cover tuition or supplies, that money is invisible to the IRS. Once Section 139K is repealed, that $5,000 counts as taxable income. This means a student could potentially owe hundreds of dollars in new taxes on the very financial aid meant to help them afford an education.

Shifting the Educational Landscape

By removing these incentives, the bill creates a significant hurdle for organizations that rely on private donations to fund alternative schooling options. If you are a parent relying on a private scholarship to keep your child in a specialized school that fits their learning style, you might see that funding dry up as donors lose their tax breaks. The logic here is straightforward: the bill’s authors want to prioritize the public school budget. However, the immediate reality for families is a potential increase in out-of-pocket costs and a more complicated tax return. For SGOs, the challenge will be convincing donors to keep giving without the tax carrot, while students will have to budget for the IRS taking a cut of their scholarship checks.