Treasury and IRS Release Proposed Rules for Education Freedom Tax Credit

The U.S. Department of the Treasury and the Internal Revenue Service released proposed rules for the nationwide Education Freedom Tax Credit, establishing a mechanism for taxpayers to generate billions of dollars in educational scholarships starting Jan. 1, 2027, according to The Washington Post. The temporary regulations outline how states and scholarship-granting organizations will manage the program, which creates federal tax credits for contributions directed toward elementary and secondary school expenses.

Under the guidance, taxpayers in participating states can receive federal tax credits for contributions to approved scholarship-granting organizations, with the Treasury Department interpreting the legislation to allow married couples filing jointly to receive a $3,400 credit, as JNS.org reported. The Trump administration has championed the program as the largest expansion of school choice in history, estimating that by 2030, more than 11 million taxpayers will contribute nearly $26 billion annually through an estimated 600 to 700 scholarship-granting organizations, generating roughly 2.2 million scholarships a year, according to K-12 Dive.

Thirty states opt into federal scholarship program

The federal scholarship program is designed to operate alongside existing state-led private school choice initiatives. EdChoice data shows about 1.6 million students across 34 states, the District of Columbia, and Puerto Rico participate in 75 state-level private school choice programs as of Sept. 30, according to K-12 Dive. Thirty states have already made advance elections to participate in the 2027 launch, prompting calls from program supporters for remaining governors to opt in.

Students residing in households with incomes up to 300% of their area’s median gross income qualify for a scholarship under the proposed rules. Treasury and IRS officials stated that threshold translates to approximately 96% of students living in participating states. The regulations place strict limitations on awards to insiders and their families, establish removal procedures for noncompliant organizations, and prohibit taxpayers from earmarking donations for specific students.

Divergent Responses from Advocacy Groups

Pro-school choice organizations welcomed the release of the guidance. Nathan Diament, executive director of the Orthodox Union Advocacy Center, told JNS.org that the clarification for married filing jointly filers effectively doubles the potential for the program to fund religious education in America. Sheila Katz, chief Jewish life officer for Jewish Federations of North America, stated to JNS.org that the credit creates an unprecedented opportunity to make Jewish day schools more affordable.

Conversely, progressive and public education advocates raised sharp objections to the regulatory framework. Svante Myrick, president of People For the American Way, released a statement opposing the rules, arguing that the program lacks effective oversight and will drain students and funding from public schools to benefit wealthier families.

Implementation Timeline and Congressional Context

The temporary regulations were published to give states and scholarship administrators adequate planning time before the program officially opens on Jan. 1, 2027. Treasury and Department of Education officials held a press call to outline the framework, emphasizing that the rules provide clear information for taxpayer donors and participating organizations.

The program was established through federal legislation passed by the Republican congressional majority, standing in stark contrast to existing federal education spending. By comparison, the Department of Education’s budget for Title I grants supporting low-income schools stood at $18.4 billion for fiscal year 2026, while projected annual contributions under the new tax credit program are expected to reach $26 billion by 2030.