Educational Choice for Children Act of 2025

Bill Number: H.R. 833
Origin Chamber: House
Congress: 119th Congress, Session 1
Policy Area: Taxation
Status: Introduced
Latest Action: 2025-01-31: 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: 2025-12-05T21:33:57Z

AI-Generated Summary

Purpose of the Legislation

The Educational Choice for Children Act of 2025 aims to expand educational opportunities for low-income students by incentivizing donations to nonprofit organizations that provide scholarships for elementary and secondary education expenses. It does this through federal tax credits for donors, making it easier for families to afford options like private schools, homeschooling, or tutoring, while ensuring scholarships go to eligible students from households earning up to 300% of the area median income.

Key Provisions

Tax Credits for Donors:
Individuals (U.S. citizens or residents) can claim a credit equal to their qualified donations (cash or marketable securities) to scholarship-granting organizations (SGOs), up to the greater of 10% of their adjusted gross income or $5,000 per year.
Corporations can claim a credit up to 5% of their taxable income for similar donations.
Credits are reduced if the donor also gets a state tax credit for the same donation; unused individual credits can carry forward for up to 5 years.
Donations qualifying for this credit cannot also be deducted as charitable contributions under existing tax rules.

Volume Cap on Credits:
A national limit of $10 billion per year starts in 2026, allocated on a first-come, first-served basis by the IRS based on when donations are made.
10% of the cap is divided evenly among states (including D.C.) for residents or corporations in those states.
The cap increases by 5% in years of high usage (90% or more allocated) and cannot decrease year-over-year; the IRS must track and publicly report usage in real time.

Scholarship Requirements and Eligible Uses:
Scholarships cover "qualified expenses" like tuition, books, online materials, tutoring (by licensed or qualified instructors), testing fees, dual enrollment, and therapies for students with disabilities—at public, private (including religious), or homeschool settings.
Eligible students are those from low-income households (up to 300% of area median gross income) who can attend public elementary or secondary schools.
SGOs must be tax-exempt nonprofits (501(c)(3)) focused on scholarships, with separate accounts for these funds, annual audits by independent accountants, income verification for recipients, and no felony convictions for officers or board members.
SGOs prioritize renewing scholarships for prior recipients and their siblings, avoid earmarking funds for specific students, and must distribute at least 100% of receipts (minus up to 10% for admin costs and 15% carryover) within three years, or face penalties (donations to non-compliant SGOs lose credit eligibility).

Income Exclusion for Recipients:
Scholarship amounts received by eligible students (or their dependents) are not counted as taxable income.

Organizational and Parental Protections:
Governments cannot control or direct SGOs or private/religious schools; the law promotes maximum independence for these groups.
No discrimination against religious schools in qualifying expenses; governments cannot exclude or penalize faith-based institutions or discourage scholarship use at private schools.
Parents of scholarship recipients can intervene in lawsuits challenging the law's constitutionality to defend it.

Effective Dates:
Tax credits and penalties apply to taxable years ending after December 31, 2025.
Income exclusions apply to amounts received after that date.

Significant Changes to Existing Law

Adds new sections to the Internal Revenue Code (IRC): Section 25F for individual credits, 45BB for corporate credits, 139J for income exclusions, and a new Subchapter I in Chapter 42 for penalties on non-compliant SGOs.
Introduces a nationwide volume cap system for these credits, similar to caps in other tax incentive programs (e.g., low-income housing credits), but tailored to education with real-time tracking.
Prohibits double-dipping (e.g., no charitable deduction alongside the credit) and adds rules to prevent self-dealing (e.g., no scholarships to insiders, akin to private foundation rules).
Explicitly includes religious and homeschool options in qualified expenses, expanding beyond current IRC provisions for education-related deductions or credits, which are limited (e.g., no broad federal credit for private school tuition).

Potential Impacts

On Citizens: Low-income families gain access to more school choices, potentially improving educational outcomes through scholarships covering diverse options. Donors (especially higher-income individuals and businesses) benefit from tax savings, encouraging philanthropy; however, the first-come, first-served cap may limit availability in high-demand areas.
On Government Agencies: The IRS must administer credits, allocate the cap, verify SGO compliance, and conduct audits, increasing administrative workload and potentially reducing federal tax revenue (estimated offset by encouraging donations that fund scholarships). States may see indirect effects if federal credits interact with their own tax programs, but no direct mandates on state education funding.
On International Relations: No direct impacts, as the bill focuses on domestic U.S. tax policy and education.

Main Stakeholders Affected

Donors: Individuals and corporations, who gain tax incentives but face competition for the volume cap.
Eligible Students and Families: Low-income households (up to 300% of area median income), benefiting from scholarships for broader education options.
Scholarship-Granting Organizations (SGOs): Nonprofits that must meet strict compliance rules (e.g., audits, distributions) to qualify, potentially growing their operations with increased donations.
Educational Institutions: Private, religious, and homeschool providers gain funding opportunities; public schools may face enrollment competition.
Government Entities: IRS for tax administration; federal/state/local governments restricted from interfering with SGOs or private schools.

Notable Legal, Constitutional, or Political Implications

Legal: Strengthens accountability for SGOs through audits and penalties, reducing fraud risks in scholarship programs. The income verification uses common documents (e.g., tax returns, pay stubs) to ensure fairness without excessive bureaucracy.
Constitutional: Protects against Establishment Clause challenges by prohibiting discrimination against religious schools and affirming parental rights to choose faith-based education, while emphasizing no government control over private entities (promoting free exercise and avoiding entanglement). The parental intervention provision streamlines defenses in court without forcing consolidation of arguments.
Political: Advances school choice policies, appealing to supporters of expanded private education options and reduced public school monopolies; could spark debates on equity (e.g., whether it diverts funds from public schools) or federal overreach into state education matters, though it avoids direct funding shifts.

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 (91)

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. Moore, Blake D. [R-UT-1], Rep. Feenstra, Randy [R-IA-4], Rep. Malliotakis, Nicole [R-NY-11], Rep. Hern, Kevin [R-OK-1], 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], Rep. Murphy, Gregory F. [R-NC-3], Rep. Cline, Ben [R-VA-6], Rep. Meuser, Daniel [R-PA-9], Rep. Timmons, William R. [R-SC-4], Rep. Bergman, Jack [R-MI-1], Rep. Joyce, John [R-PA-13], Rep. Hinson, Ashley [R-IA-2], Rep. Turner, Michael R. [R-OH-10], Rep. Kustoff, David [R-TN-8], Rep. Finstad, Brad [R-MN-1], Rep. Mackenzie, Ryan [R-PA-7], Rep. Mann, Tracey [R-KS-1], Rep. James, John [R-MI-10], Rep. Steil, Bryan [R-WI-1], Rep. Haridopolos, Mike [R-FL-8], Rep. Stauber, Pete [R-MN-8], Rep. Mace, Nancy [R-SC-1], Rep. Smucker, Lloyd [R-PA-11], Rep. Huizenga, Bill [R-MI-4], Rep. Baumgartner, Michael [R-WA-5], Rep. Calvert, Ken [R-CA-41], Rep. Rulli, Michael A. [R-OH-6], Rep. Lee, Laurel M. [R-FL-15] and 41 more

Recent Actions

2025-01-31: 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.
2025-01-31: 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.
2025-01-31: Introduced in House
2025-01-31: Introduced in House

Bill Versions

Educational Choice for Children Act of 2025 — issued 2025-01-31 — PDF (22 pages)