Universal School Choice Act Creates $10 Billion Tax Credit for Private School Scholarships Starting in 2026

The Universal School Choice Act is setting up a major federal program designed to boost private K-12 education through tax credits. Starting in 2026, this bill creates a new federal tax credit for individuals and corporations who donate to specific Scholarship Granting Organizations (SGOs). For individual taxpayers, the credit can cover up to $5,000 or 10% of their adjusted gross income, essentially allowing them to redirect a portion of their federal tax liability toward funding private school scholarships (Sec. 2).

The $10 Billion Cap and the State Allocation Game

This isn't a blank check program. The bill establishes a hard national spending limit, or “volume cap,” of $10 billion annually on the total amount of these tax credits that can be claimed nationwide (Sec. 3). The Treasury Secretary has to divide this $10 billion among the states using a formula heavily weighted toward low-income students: 80% of the remaining funds are allocated based on the ratio of 5-to-17-year-olds living in poverty in that state compared to the national total. If the cap is reached, access to the credit will shift to a first-come, first-serve basis, meaning organizations that can process contributions fastest will win the race for the remaining funds. If you’re a taxpayer looking to claim this credit, you have to tell the IRS exactly which state your contribution is designated for, and that state must have available room under its allocation cap (Sec. 3).

What the Scholarship Money Can Pay For

For parents, the funds distributed through these SGOs can cover a wide range of "qualified elementary or secondary education expenses." This goes way beyond just tuition and books. It includes things like licensed tutoring, required hardware or software for online learning, standardized test fees, dual enrollment fees, and even therapy for students with disabilities (like speech or occupational therapy). Importantly, these expenses also apply if the student is being homeschooled (Sec. 2). Furthermore, any scholarship money received by a parent for these K-12 expenses is explicitly excluded from their gross income, meaning the scholarship itself is tax-free (Sec. 4).

The Rules for Scholarship Organizations

To receive these tax-credited donations, SGOs must be 501(c)(3) charities that dedicate substantially all of their work to giving out scholarships. They have strict rules to follow: they must give scholarships to at least two students attending different schools, and they must prioritize students from low-income households (defined as those below 500% of the poverty line). They also must distribute 100% of the receipts they take in (minus reasonable administrative costs) within three years or risk losing their qualified status (Sec. 2). This distribution requirement is the bill’s way of ensuring the funds move quickly from the donor to the student.

Autonomy vs. Accountability: The Oversight Question

One of the most significant sections of this bill is its explicit shield against government oversight. Section 5 states that no federal, state, or local government entity can dictate how a participating SGO operates, nor can they control any aspect of how a private or religious school operates. This provision is designed to ensure that schools receiving these scholarship funds maintain their autonomy, particularly concerning religious character or faith-based policies. The law specifically prohibits the government from setting rules that would stop expenses at these schools from counting as “qualified expenses.” While this ensures parental and organizational freedom, it also raises questions about accountability, as it limits the government’s ability to impose operational requirements—like non-discrimination policies—beyond the required financial and compliance audits (Sec. 5).

The Real-World Trade-Off

If this bill passes, it creates a massive new funding stream for private education, potentially giving thousands of families—especially those in the low-income bracket who are prioritized—genuine choice. For a working parent trying to afford specialized tutoring or therapy that isn't covered by their local public school, this could be a game-changer. However, this $10 billion annual tax credit is federal revenue that will no longer be collected, which is revenue that otherwise supports public services, including public schools. Taxpayers who don't use the credit will still effectively subsidize this new system. Furthermore, taxpayers in states that already offer generous state tax credits for school choice will find their federal credit reduced by the state credit amount, preventing them from double-dipping and complicating tax filings (Sec. 2).