The U.S. Treasury Department released proposed rules on October 1, 2026, for the nation’s first federal school choice program. The guidance sets strict limits on state control, allows married couples to claim tax credits up to $3,400, and establishes a January 1, 2027 launch date.
States hoping to administer the Education Freedom Tax Credit will find their administrative hands tied under new temporary and proposed regulations released by the Treasury Department and the Internal Revenue Service. Enacted through 2025’s One Big Beautiful Bill Act, the program incentivizes individual taxpayers to redirect cash donations to certified scholarship-granting organizations in exchange for a dollar-for-dollar federal income tax credit.
While 30 states have already agreed to participate in the nationwide initiative ahead of its January 1, 2027 effective date, federal officials made it clear during a press call that local policymakers will wield minimal authority over how the system operates within their borders.
Treasury Restrictions Block State Oversight on School Choice
Under the newly published regulatory package, participating states are barred from placing operational restrictions on scholarship-granting organizations. State authorities cannot limit the types of schools that scholarship recipients attend, nor can they dictate the types of qualified elementary or secondary education expenses covered by the funds, provided they meet baseline federal criteria.
This restriction prevents governors and state legislatures from steering credits exclusively toward low-income students or specific local communities. States cannot block scholarship funds from flowing to religious and private institutions. Treasury and U.S. Department of Education officials emphasized during a press call that the regulations aim to help states and organizations prepare, give taxpayer donors clear information, and create more educational opportunities for families.
The Education Freedom Tax Credit marks a new chapter in educational freedom and opportunity by establishing America’s first nationwide school choice program and empowering states to give students and families more options.
Scott Bessent, U.S. Treasury Secretary
The rules also stipulate that a governor opting into the program does so for a single year at a time. While some stakeholders advocated for restrictions preventing states from opting back out once joined, the guidance leaves that yearly flexibility intact. Tim Walberg, chairman of the House Education and Workforce Committee, touted the guidelines for school choice, stating that parents know their children best and deserve the freedom to choose the education that works best for their family.
Rules Grant Married Couples Larger Tax Credits
Individual taxpayers can claim an annual nonrefundable federal income tax credit of up to $1,700 for cash contributions made to certified scholarship organizations. In a clarification welcomed by religious school advocates, the Treasury Department confirmed that married couples filing jointly can receive a combined credit of up to $3,400.
Pro-school choice Jewish organizations lauded the interpretation. Nathan Diament, executive director of the Orthodox Union Advocacy Center, noted that the provision literally doubles the potential for this program to transform funding math for religious day schools across the country. Sheila Katz, chief Jewish life officer for Jewish Federations of North America, added that the tax credit creates an opportunity that has never existed before and has the potential to make Jewish day school more affordable.
To capture low-income participation, the rules establish automatic eligibility shortcuts. Children already enrolled in need-based programs like nutrition assistance qualify instantly. Treasury officials emphasized that simply showing that you qualify for that government assistance program is sufficient verification without additional paperwork. Sydney Altfield urged New York Gov. Kathy Hochul to enroll her state in the program while praising the provision for couples filing jointly.
Federal Agencies Project Nationwide Expansion
Federal agencies project massive expansion over the next few years. Treasury and IRS estimates indicate that by 2030, more than 11 million taxpayers will donate nearly $26 billion annually through roughly 600 to 700 scholarship-granting organizations, translating to about 2.2 million scholarships each year.
The Department of Education budget for Title I grants serving low-income schools stood at $18.4 billion for fiscal year 2026. Paul Peterson, director of Harvard University’s Program on Education Policy and Governance, noted during a conference that American education is undergoing a profound change while grappling with falling fertility rates, declining student performance, district enrollment losses, and artificial intelligence.
Critics immediately pushed back against the federal framework. People For the American Way President Svante Myrick argued that these new rules will help implement yet another Trump effort to undermine public schools by draining students and financial resources away from the public system.
Advocacy groups are turning their attention to the 20 remaining governors who have not yet opted their states into the tax credit framework.
