Feds release guidance on education freedom tax credit

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(The Center Square) – The U.S. Department of the Treasury and Internal Revenue Service released guidance on the federal Education Freedom Tax Credit, giving states more details on the rules and regulations intended to protect scholarship funds from fraud and abuse.

Currently, 30 states have opted into the Trump administration's school choice initiative, while 20 states and Washington, D.C., have not. 

The program will take effect Jan. 1 and supports K–12 education expenses, including qualified elementary and secondary education expenses such as tuition and tutoring.

The Department of the Treasury clarified that the $1,700 cap on donations is per individual, and married couples filing jointly may donate up to $3,400. Taxpayers can contribute to any qualified Scholarship Granting Organization, regardless of where they live.

Several Democratic governors, including New York Gov. Kathy Hochul and California Gov. Gavin Newsom, have said they were awaiting federal rules and regulations before deciding whether to opt into the program.

“This is a long-awaited step and a reason many Democratic governors have said they won’t join until they have official guidelines from Treasury,” Savannah Newhouse, the  Education Department's press secretary, told The Center Square. 

The Center Square reached out to Hochul and Newsom for comment but did not receive a response.  

The rules were released in the Federal Register on Oct. 1, 2026. The first rule establishes temporary IRS requirements for implementing the new federal tax credit for donations to SGOs and creates a framework for how the scholarship tax credit program will run. 

The second rule provides further detail on the tax credit program, including who is eligible and donation caps. It also proposes rules for verifying household income and eligible educational expenses.

The Department of the Treasury and the IRS state that the program could support almost 700 SGOs with over 11 million taxpayers generating $26 billion in annual contributions by 2030. 

“Treasury’s guidance marks another major step toward making the Education Freedom Tax Credit a reality for families across America,” Tommy Schultz, CEO of the American Federation for Children, said in a statement. “Allowing married couples filing jointly to contribute up to $3,400 will increase the ability for Americans to support scholarships and strengthen educational opportunities for children.”