High-Quality Charter Schools Act
- Bill Number
- S. 1813
- Origin Chamber
- Senate
- Congress
- 119th Congress, Session 1
- Policy Area
- Taxation
- Status
- Introduced
- Latest Action
- 2026-03-19: Committee on Health, Education, Labor, and Pensions. Hearings held.
- Last Updated
- 2026-05-12T16:55:26Z
AI-Generated Summary
Purpose
The High-Quality Charter Schools Act aims to encourage private donations for starting new charter schools or growing existing ones by offering a tax credit to individual donors. Charter schools are publicly funded but independently operated schools that often have more flexibility than traditional public schools. This legislation seeks to boost high-performing charter schools through tax incentives, without direct government spending.
Key Provisions
- Tax Credit for Donations (Section 25F): U.S. citizens or residents can claim a credit equal to 75% of their qualified donations (cash or marketable securities) to eligible organizations. The credit is capped at the greater of 10% of the donor's adjusted gross income (AGI, which is total income minus certain deductions) or $5,000 per year. Unused credits can carry forward for up to 5 years.
- Eligible Organizations: Donations qualify only to tax-exempt nonprofits (under section 501(c)(3) of the tax code, meaning they're charitable and not private foundations) that are:
- Charter management organizations (groups that run multiple charter schools) or individual charter schools.
- Either recipients of federal grants for replicating or expanding high-quality charters, or ranked in the top 10% for student performance by their state.
- They must keep donated funds separate, undergo annual audits by an independent certified public accountant (an outside expert not affiliated with the organization), and certify compliance to the IRS.
- Qualified Donations: Must be specifically for creating or expanding charter schools operated by the organization. Donors cannot also deduct these as charitable contributions under existing tax rules (section 170), to avoid double benefits.
- Spending Requirements (Section 4969): Organizations must spend at least 100% of qualified donations on charter school creation or expansion within 5 years (the "expenditure deadline").
- Up to 10% can cover reasonable administrative costs (e.g., overhead related to the project); anything over that needs justification.
- Up to 15% can be carried over to the next year.
- "Spending" includes formal commitments, like reserving funds for multi-year projects.
- Failure to meet this triggers a penalty: No further donations qualify for credits until compliance is restored, determined by the IRS.
- Volume Cap (Section 4): Limits total credits nationwide to $5 billion per year starting in 2026.
- $10 million is allocated to each state for residents there (based on where the donor lives).
- The rest is available nationally on a first-come, first-served basis (tracked in real-time by the Treasury Department).
- Unused state allocations roll over to the national pool next year.
- If 90% of the national cap is used, it increases by 5% for the following year.
- Organizational Autonomy (Section 5): Eligible organizations aren't considered government agents just for receiving these funds. The law promotes maximum independence from government oversight, as allowed by existing rules, to let them best serve students.
- Effective Date: Applies to tax years starting after December 31, 2025.
Significant Changes to Existing Law
- New Tax Credit: Adds section 25F to the Internal Revenue Code, creating a targeted incentive for charter school donations—unlike the general charitable deduction in section 170, this is a direct credit (reduces tax bill dollar-for-dollar) at a high rate (75%), but limited to specific high-quality charter entities.
- Penalty Mechanism: Introduces a new subchapter I under chapter 42, imposing spending rules and IRS enforcement on nonprofits, similar to private foundation excise taxes but tailored to charter organizations.
- Cap and Allocation System: Establishes a novel annual volume cap with state minimums and real-time tracking, not present in most existing tax credits (e.g., unlike renewable energy credits, this ties to state performance rankings and federal education grants).
- No Double Benefit: Explicitly blocks overlap with standard charitable deductions, changing how these donations are treated compared to other philanthropy.
Potential Impacts
- On Government Agencies: The IRS and Treasury will need to implement tracking systems, audits, and certifications, increasing administrative workload. States may evaluate charter performance for eligibility, affecting education departments. Overall tax revenue could drop by up to $5 billion annually due to credits, potentially shifting education funding toward private sources.
- On Citizens: Individual donors (especially higher-income ones) gain a strong incentive to support charters, possibly increasing access to alternative schooling options in underserved areas. Families with students in or seeking charter schools may benefit from more facilities, but traditional public school funding isn't directly affected.
- On International Relations: Minimal impact, as this is a domestic tax and education policy focused on U.S. schools.
- Broader Effects: Could accelerate charter school growth, particularly high-performers, leading to more educational choices but raising concerns about resource competition with traditional schools.
Main Stakeholders Affected
- Individual Taxpayers: U.S. citizens and residents who donate; they benefit from credits but must meet residency and cap rules.
- Charter School Organizations: Nonprofits, management groups, and schools that qualify; they gain funding but face strict spending, auditing, and performance requirements.
- States and Education Agencies: Involved in ranking charters and allocating caps; may see shifts in school enrollment and local education dynamics.
- Federal Government (IRS/Treasury): Handles enforcement, tracking, and revenue loss.
- Students and Families: Indirectly affected through expanded charter options, especially in low-performing districts.
Notable Legal, Constitutional, or Political Implications
- Legal: Strengthens accountability via audits and spending mandates, reducing risks of fund misuse, but the 5-year expenditure window allows flexibility. The first-come, first-served cap could lead to disputes over timing, potentially requiring IRS guidance or litigation.
- Constitutional: The autonomy provision emphasizes separation from government control, aligning with charter schools' independent status under the Elementary and Secondary Education Act; it avoids entangling federal funds with state operations in ways that might raise federalism concerns (e.g., 10th Amendment limits on federal education role).
- Political: Supports the expansion of school choice, a priority for charter advocates, by leveraging tax policy over direct appropriations. It ties credits to "high-quality" metrics, promoting merit-based growth, but could spark debates on equity (e.g., favoring urban or certain states) or diverting resources from public schools without broad consensus. No partisan language, but introduced by a Republican senator, it fits broader GOP education reform themes.
This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.
Sponsor
Cosponsors (3)
Sen. Cassidy, Bill [R-LA], Sen. Tuberville, Tommy [R-AL], Sen. Scott, Rick [R-FL]
Recent Actions
- 2026-03-19: Committee on Health, Education, Labor, and Pensions. Hearings held.
- 2025-05-20: Read twice and referred to the Committee on Finance.
- 2025-05-20: Introduced in Senate
Bill Versions
- High-Quality Charter Schools Act — issued 2025-05-20 — PDF (13 pages)