The Treasury Department and IRS have released proposed regulations for the Education Freedom Tax Credit, the first federal program allowing taxpayers to receive a dollar for dollar credit for cash gifts funding K-12 scholarships. The credit can reach $1,700 for an individual donor.

The program is called the Federal Scholarship Tax Credit by the IRS and is also known as the Education Freedom Tax Credit. It advances President Donald Trump's campaign promise to expand education freedom by returning tax dollars to parents, with a start date of Jan. 1, 2027.

Education Secretary Linda McMahon pointed to decades of federal spending and falling student performance. "We have spent $3 trillion since the Department of Education was established in 1980, and we've continually watched our NAEP scores consistently decline over these past 46 years," McMahon told Just the News.

"We're doing something wrong. We're failing our students, and when you only have 30 to 35% proficiency, that's high in some areas, we really have to do something to change this," McMahon added.

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McMahon called education freedom the key to opening opportunity and success for the next generation. She said the program represents the largest expansion of school choice in history and would increase opportunities for millions of children.

Congress created the permanent and nonrefundable credit under Section 25F of the Internal Revenue Code as part of the 2025 tax law. Individuals may claim up to $1,700 annually, while married couples filing jointly may claim up to $3,400.

The proposal is now in its public comment period, and citizens have until Dec. 1, 2026, to submit comments. Treasury and the IRS issued the proposed regulations and companion temporary procedures on Thursday.

Thirty states have already opted into the program, according to the Treasury announcement and contemporaneous tallies. Participating states include Florida, Texas, Ohio, and Colorado, and McMahon confirmed the estimate to Just the News.

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Governors must opt their states into the program. McMahon said she found it difficult to understand why every governor had not already joined, given the opportunity for states to obtain more money for education programs.

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Treasury and the IRS project that the program could support 600 to 700 organizations by 2030. Those organizations could draw nearly $26 billion annually from more than 11 million taxpayers and fund as many as 2.2 million scholarships.

Qualified expenses include private school tuition, tutoring, supplies, computers, extended day programs, and disability services. Students in public, private, or charter settings may use scholarships for eligible expenses, according to the Education Department.

The state decisions have crossed party lines. Democratic governors in Hawaii, Minnesota, New Mexico, and Oregon have said their states will not participate, while Republican lawmakers and Democratic governors have clashed over participation elsewhere.

Democratic governors in North Carolina and Kansas vetoed legislation requiring their states to join, according to Stateline. GOP controlled legislatures overrode both vetoes, while Democratic governors in Arizona and Wisconsin successfully vetoed Republican legislation that would have added their states.

Donations must go to Scholarship Granting Organizations, which are 501(c)(3) public charities that award scholarships. States must join the program and identify eligible organizations, although taxpayers anywhere may donate to an approved organization in a participating state.

Students must live in a participating state to receive assistance. The guidance also says states cannot impose discretionary barriers that exclude organizations meeting the statutory qualifications.

Scholarship Granting Organizations must maintain contributions in separate accounts and spend at least 90% of relevant income on scholarships. Each organization must serve at least 10 students who do not all attend the same school.

A safe harbor permits organizations whose work is largely related to scholarships to measure the spending requirement against a segregated account. Household eligibility is capped at 300% of area median gross income, adjusted for family size.

The guidance provides streamlined verification for families in certain needs based programs, foster children, and students receiving tutoring or special needs services in lower income areas. Treasury estimates that roughly 96% of children in participating states would qualify under the rules and safe harbors.

Any state credit claimed for the same donation will reduce the federal credit. States face an advance election deadline of Jan. 1, 2027, and must submit their lists of eligible organizations by Feb. 15.

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