To amend the Internal Revenue Code of 1986 to allow a credit against tax for charitable donations to nonprofit organizations providing education scholarships to qualified elementary and secondary students.

Bill Number

H.R. 817

Origin Chamber

House

Congress

119th Congress, Session 1

Policy Area

Taxation

Status

Introduced

Latest Action

2025-01-28: Referred to the Committee on Ways and Means, and in addition to the Committee on Education and Workforce, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.

Last Updated

2025-07-21T19:44:15Z

AI-Generated Summary

Purpose

The Educational Choice for Children Act of 2025 aims to promote access to elementary and secondary education by incentivizing charitable donations to nonprofit organizations that provide scholarships. It does this through federal tax benefits, targeting low- and moderate-income families to cover qualified education expenses at public, private, religious, or homeschool settings, while emphasizing limited government involvement.

Key Provisions

• Tax Credit for Donations (Section 2): Individuals can claim a non-refundable tax credit for qualified cash or marketable securities donations to approved "scholarship granting organizations" (SGOs). The credit equals the donation amount, limited to the greater of 10% of the donor's adjusted gross income (AGI, a measure of income after certain deductions) or $5,000 per year. Donations cannot also be deducted as charitable contributions under existing tax rules.
• Volume Cap: Nationwide cap of $5 billion annually from 2025 to 2028 (zero thereafter), allocated first-come, first-served by the IRS. 10% is reserved equally for each state (including D.C.) for residents there. The cap can increase by 5% in high-use years and cannot decrease year-over-year.
• Carryforward: Unused credits can be carried forward up to 5 years.
• Reduction for State Credits: Federal credit is reduced by any similar state tax credit claimed for the same donation.
• Eligible Students and Expenses (Section 2(c)): Scholarships go to students from households with income up to 300% of the area median gross income (a local benchmark for average earnings) who qualify for public school enrollment. Qualified expenses include tuition, books, online materials, tutoring (by licensed or qualified instructors), testing fees, dual enrollment, and therapies for students with disabilities. Covers public, private, religious schools, or homeschooling.
• Scholarship Granting Organizations (SGOs): Must be tax-exempt nonprofits (under section 501(c)(3) of the tax code, meaning they are charitable and not private foundations). Key rules:
• Primarily provide scholarships for qualified expenses.
• Serve at least two students not all at the same school; prioritize renewals and siblings.
• No earmarking for specific students; verify income via tax returns or similar documents.
• Annual audits by an independent certified public accountant (an external, unbiased auditor); no felonies by officers.
• Prohibition on self-dealing (awarding scholarships to insiders, similar to rules for private foundations).
• Must distribute 100% of receipts within three years (minus up to 10% for admin costs and 15% carryover), or face penalties disqualifying future donations from credits (new section 4969).
• Income Exclusion for Scholarships (Section 3): Scholarship amounts received by eligible students (for dependents) are not counted as taxable income.
• Autonomy Protections (Section 4):
• Governments cannot control SGOs, private/religious schools, or discourage scholarship use at non-public schools.
• No discrimination against religious schools in qualifying expenses.
• Parents of scholarship recipients can intervene in lawsuits challenging the law's constitutionality.
• Effective Dates: Tax credit and penalties apply to years ending after December 31, 2024; income exclusion to amounts received after that date.

Significant Changes to Existing Law

• Adds new Internal Revenue Code (IRC) sections: 25F (tax credit for scholarships), 139J (income exclusion), and a new subchapter under chapter 42 (penalties for SGOs failing to distribute funds promptly).
• Modifies IRC section 25(e) to include the new credit in ordering rules for applying multiple credits.
• Introduces a federal framework mirroring some state tax-credit scholarship programs but with nationwide scope, volume caps, and strict SGO oversight to prevent abuse.
• Explicitly excludes double benefits (no additional charitable deduction under IRC section 170) and adds real-time IRS tracking for allocations.
• For the first time federally, protects religious and private schools from government interference in scholarship programs, building on but expanding beyond existing tax exemptions for nonprofits.

Potential Impacts

• Government Agencies: The IRS must administer credits, allocations, audits, and real-time tracking, increasing administrative workload and costs. Education departments may see indirect effects from reduced public school enrollment but no direct funding changes. States could see overlaps or reductions in their own programs due to the federal credit offset.
• Citizens: Low- to moderate-income families (up to 300% of median income) gain better access to diverse education options, potentially improving choices for 10-15 million eligible students nationwide. Donors (likely higher-income individuals) benefit from tax savings, encouraging up to $5 billion in annual donations. However, the cap may limit availability in high-demand years.
• International Relations: Minimal direct impact, as this is a domestic tax and education policy.

Main Stakeholders Affected

• Individual Taxpayers and Donors: Primarily those with tax liability who donate; benefit from credits but face limits.
• Eligible Students and Families: Low/moderate-income households with school-age children; gain scholarship access for broader education options.
• Scholarship Granting Organizations: Nonprofits focused on education; receive funding boost but must comply with audits, distributions, and anti-abuse rules.
• Educational Institutions: Public, private, religious, and homeschool providers; private/religious schools may see enrollment increases without government strings attached.
• Government Entities: IRS (implementation), state tax authorities (credit interactions), and courts (potential lawsuits).

Notable Legal, Constitutional, or Political Implications

• Legal: Establishes enforceable SGO standards to ensure funds reach intended students, with penalties for non-compliance reducing fraud risks. Income verification and audit requirements promote transparency.
• Constitutional: Protects against government entanglement with religious schools (aligning with First Amendment free exercise and establishment clause precedents), but could face challenges if seen as indirectly funding religion via tax credits. Parental intervention rights may streamline defenses in court.
• Political: Advances "school choice" agenda, potentially shifting resources from public to private education, sparking debates on equity and public school funding. Temporary cap (ending 2028) allows evaluation but may pressure for extensions; bipartisan sponsors suggest cross-aisle appeal, though critics may argue it favors wealthier donors over direct aid.

This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.

Sponsor

Rep. Smith, Adrian [R-NE-3]

Cosponsors (27)

Rep. Owens, Burgess [R-UT-4], Rep. Walberg, Tim [R-MI-5], Rep. Kelly, Mike [R-PA-16], Rep. Yakym, Rudy [R-IN-2], Rep. LaHood, Darin [R-IL-16], Rep. Letlow, Julia [R-LA-5], Rep. Miller-Meeks, Mariannette [R-IA-1], Rep. Donalds, Byron [R-FL-19], Rep. Tenney, Claudia [R-NY-24], Rep. Feenstra, Randy [R-IA-4], Rep. Moore, Blake D. [R-UT-1], Rep. Hern, Kevin [R-OK-1], Rep. Malliotakis, Nicole [R-NY-11], Rep. Lawler, Michael [R-NY-17], Rep. Fong, Vince [R-CA-20], Rep. Carey, Mike [R-OH-15], Rep. Hudson, Richard [R-NC-9], Rep. Salazar, Maria Elvira [R-FL-27], Rep. Franklin, Scott [R-FL-18], Rep. Crenshaw, Dan [R-TX-2], Rep. Wilson, Joe [R-SC-2], Rep. Rose, John W. [R-TN-6], Rep. Weber, Randy K. Sr. [R-TX-14], Rep. Ciscomani, Juan [R-AZ-6], Rep. Moolenaar, John R. [R-MI-2], Rep. Allen, Rick W. [R-GA-12], Rep. Dunn, Neal P. [R-FL-2]

Recent Actions

• 2025-01-28: Referred to the Committee on Ways and Means, and in addition to the Committee on Education and Workforce, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.
• 2025-01-28: Referred to the Committee on Ways and Means, and in addition to the Committee on Education and Workforce, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.
• 2025-01-28: Introduced in House
• 2025-01-28: Introduced in House

Bill Versions

• Educational Choice for Children Act of 2025 — issued 2025-01-28 — PDF (20 pages)