The "Educational Choice for Children Act of 2025" creates federal tax credits for individuals and corporations who donate to scholarship granting organizations that provide private school scholarships to eligible students, with a capped volume that increases based on usage. It also protects the autonomy of scholarship organizations and the private schools that receive these funds from government interference.
Bill Cassidy
Senator
LA
The "Educational Choice for Children Act of 2025" introduces a federal tax credit for individuals and corporations who donate to scholarship granting organizations that provide educational scholarships to eligible elementary and secondary students. These scholarships can be used for tuition, books, tutoring, and other qualified education expenses. The bill sets a volume cap on the total amount of donations eligible for the tax credit and includes provisions to prevent government control over scholarship organizations and non-public schools. It also exempts these scholarship amounts from gross income.
New Tax Break for Private School Donations: 'Educational Choice for Children Act' Kicks Off in 2026, Caps at $10 Billion
The "Educational Choice for Children Act of 2025" is essentially creating a new way to fund private school scholarships through tax-deductible donations, starting in 2026. Instead of donating directly to a school, you'd give to a 'scholarship granting organization' (SGO), and the government would give you a tax credit – meaning you get a chunk of that donation back when you file your taxes.
Cash for Credits: How It Works
The bill lets individuals and corporations donate to these SGOs and get a credit back. For individuals, it's up to 10% of your income or $5,000, whichever is more. For corporations, it's capped at 5% of their taxable income. These SGOs then use that money to give scholarships to eligible students – those from families making up to 300% of the area's median income – to cover things like tuition, books, and even tutoring (SEC. 2). The catch? There's a $10 billion annual limit on these credits nationwide, handed out on a "first-come, first-served" basis (SEC. 3). If 90% or more of the volume cap is allocated in a calendar year, the volume cap for the following year will increase to 105% of that year's amount.
Real-World Rollout
Imagine a family in a city where the median income is $60,000. Their household income could be up to $180,000 (300% of the median), and they'd still qualify for these scholarships. A parent donating $5,000 to an SGO could potentially get a significant chunk of that back as a tax credit, effectively lowering the cost of private school. However, SGOs have rules: they need to give scholarships to kids at multiple schools, prioritize renewals and siblings, and can't let donors pick specific kids to benefit (SEC. 2). They also have to undergo annual audits. Plus, the money a student receives as a scholarship isn't counted as taxable income (SEC. 4).
The Fine Print and Potential Pitfalls
While the bill aims to give families more educational options, there are some things to consider. The "qualified education expenses" are pretty broad, including things like curriculum materials and online learning resources (SEC. 2). There is potential concern that the definition of 'qualified education expenses' may be broad and could include expenses not directly related to academic instruction. It's also important to note the requirements for SGO's. They must distribute 100% of their receipts, minus administrative expenses (with a 10% safe harbor) and any carryover amount, which is capped at 15% of total receipts, to the succeeding taxable year. Distributions must be made by the first day of the third taxable year following the year the receipts were received. If they fail to do so, donations will not qualify for the tax credit. The bill specifically says the government can't control private schools that participate, aiming to keep them independent (SEC. 5). But, this hands-off approach, combined with the potential for a lot of money flowing through these new SGOs, could create challenges in ensuring funds are used effectively and fairly. The bill does not provide specifics on accreditation or oversight of the schools that SGOs can give money to.