The Educational Choice for Children Act

Final Text of the Bill

Overview of Section 25F - Qualified Elementary and Secondary Education Scholarships

This section allows a federal income tax credit for individuals making qualified contributions to scholarship granting organizations (SGOs) that provide scholarships for elementary and secondary education.

Key Provisions and Definitions

✅ Eligibility for Credit (§25F(a))

Any U.S. citizen or resident can claim a credit against federal income tax equal to the amount of their qualified contributions made in the tax year.

Credit Limitations (§25F(b))

Annual Cap:

• The maximum credit per taxpayer per year is $1,700.

Offset for State Credits:

• If a taxpayer also receives a state tax credit for the same contribution, the federal credit is reduced by that amount.

Definitions (§25F(c))

1. Covered State:

   A U.S. state or D.C. that voluntarily opts in to this federal program and provides a list of qualified SGOs.

2. Eligible Student:

   Must:

   • Be in a household earning ≤ 300% of Area Median Gross Income (AMGI as defined in §42), and
   • Be eligible to enroll in a public K-12 school.
3. Qualified Contribution:

   A cash charitable donation to an SGO used only to fund scholarships for eligible students within the state.

4. Qualified Education Expenses:

   Expenses under §530(b)(3)(A) (e.g., tuition, books, supplies).

5. Scholarship Granting Organization (SGO):

   Must:

   • Be a 501(c)(3) organization (not a private foundation),
   • Maintain separate accounts for these contributions,
   • Meet specific operational requirements (see §25F(d)),
   • Be on the state’s list of approved SGOs.

SGO Requirements (§25F(d))

Minimum Standards:

• Award scholarships to ≥10 students not all at the same school.
• Use ≥90% of funds for scholarships.
• Only fund qualified K-12 education expenses.
• Prioritize:
  • Students who got a scholarship the prior year.
  • Students with siblings who are scholarship recipients.
• Cannot earmark funds for specific individuals.
• Must verify income eligibility of recipients.

Self-Dealing Rules:

• May not give scholarships to disqualified persons (as per §4946).

No Double Tax Benefit (§25F(e))

You cannot deduct qualified contributions as a charitable donation if you're already claiming the 25F credit.

Credit Carryforward (§25F(f))

Carry Forward Rule:

• If the credit exceeds your tax liability, the unused portion may be carried forward for up to 5 years.

FIFO Rule:

• Credits are applied on a first-in, first-out basis.

State Responsibilities (§25F(g))

Each participating state must:

• Submit a list of eligible SGOs to the IRS annually.
• Be certified by a designated state authority (e.g., Governor).

Regulatory Authority (§25F(h))

The Treasury Secretary is authorized to issue:

• Regulations for enforcement,
• Rules on recordkeeping and reporting.

Conforming Amendments

• Section 25 is updated to include reference to §25F.
• The table of contents for the Tax Code is amended to add Section 25F.

Related Provision: §139K - Exclusion from Gross Income

1. Scholarship Exclusion (§139K)

Scholarships received for qualified K-12 expenses from an SGO are not taxable income for:

• The student, or
• The parent/guardian.

2. Effective Date:

• Applies to amounts received after Dec. 31, 2026.

Effective Dates (§70411(c))

• Tax Credit (§25F): Applies to taxable years ending after Dec. 31, 2026.
• Exclusion from Income (§139K): Also effective for amounts received after Dec. 31, 2026.