Educational Choice for Children Act of 2025

Bill Number: S. 292
Origin Chamber: Senate
Congress: 119th Congress, Session 1
Policy Area: Taxation
Status: Introduced
Latest Action: 2025-01-29: Read twice and referred to the Committee on Finance.
Last Updated: 2025-12-05T21:33:50Z

AI-Generated Summary

Purpose

The Educational Choice for Children Act of 2025 aims to encourage donations to nonprofit organizations that provide scholarships for elementary and secondary education expenses. By offering federal tax credits to donors, the bill promotes greater educational options, such as private, religious, or homeschooling, for low-income students, without direct government funding of schools.

Key Provisions

Tax Credits for Donations:
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 by any state tax credits claimed for the same donations and cannot be claimed for the same contribution as a charitable deduction under existing tax rules.
Unused individual credits can be carried forward for up to 5 years.

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 evenly divided 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 from the prior year; the IRS must track and publicly report usage in real time.

Eligible Students and Expenses:
Eligible students are those from households with income up to 300% of the area median gross income (a measure based on local housing affordability standards) who can attend public elementary or secondary schools.
Qualified expenses include tuition, books, online materials, tutoring (by qualified instructors), testing fees, dual enrollment costs, and therapies for students with disabilities. These apply to public, private (including religious), or homeschool settings.

Scholarship Granting Organizations (SGOs):
SGOs must be tax-exempt nonprofits (under section 501(c)(3) of the tax code, meaning they are charitable organizations not subject to federal income tax) focused primarily on awarding scholarships.
Requirements include: serving at least two students not all at the same school; prioritizing prior recipients and siblings; verifying income via tax returns or similar documents; annual audits by an independent accountant; no felony convictions for leaders; and no self-dealing (e.g., scholarships to insiders).
SGOs must distribute at least 100% of receipts (minus up to 10% for admin costs and 15% carryover) within three years, or face penalties disqualifying future donations from credits.

Income Exclusion for Recipients:
Scholarship amounts for eligible students' qualified expenses are excluded from the recipient's (or their parent's) gross income, meaning they are not taxable.

Organizational and Parental Autonomy:
Governments cannot control or direct SGOs or private/religious schools participating in the program.
No discrimination against religious schools or expenses based on faith-based policies.
Parents of scholarship recipients can intervene in lawsuits challenging the bill's constitutionality to defend it.

Effective Dates:
Tax credits and income exclusion apply to years ending after December 31, 2025.

Significant Changes to Existing Law

Adds new sections to the Internal Revenue Code: Section 25F (individual credits), Section 45BB (corporate credits), Section 139J (income exclusion), and Section 4969 (penalties for SGO non-distribution).
Introduces a federal mechanism similar to state-level tax credit scholarship programs but on a national scale, with a capped funding pool.
Prevents double-dipping by disallowing charitable deductions for credited donations and integrating with existing credit limitations.
Expands tax benefits for education beyond current rules (e.g., Coverdell accounts or 529 plans), explicitly including religious and homeschool options without prior federal equivalents at this scale.

Potential Impacts

On Citizens: Low-income families may gain better access to non-public schools, tutoring, or therapies, potentially improving educational outcomes and choice. Donors benefit from tax savings, encouraging more philanthropy.
On Government Agencies: The IRS must administer allocations, audits, and tracking systems, increasing administrative workload. Federal tax revenue could decrease by billions annually due to credits (offset by no new spending).
On International Relations: No direct impacts, as the bill focuses on domestic education and tax policy.
Broader effects could include shifts in enrollment from public to private schools, straining public school funding in some areas, while boosting nonprofit and private education sectors.

Main Stakeholders Affected

Low-Income Families and Students: Primary beneficiaries through scholarships for diverse educational options.
Donors (Individuals and Corporations): Gain tax incentives to support education, potentially increasing charitable giving.
Scholarship Granting Organizations: Nonprofits that qualify can receive more funds but must comply with strict rules and audits.
Private, Religious, and Homeschool Providers: Expanded opportunities to serve students without government oversight.
Public Schools and Educators: Possible enrollment losses, affecting budgets and resources.
IRS and Federal Government: Responsible for implementation, enforcement, and revenue monitoring.
States: Receive a portion of the cap; existing state programs may interact with federal credits.

Notable Legal, Constitutional, or Political Implications

Legal: Establishes penalties for SGO mismanagement and requires income verification to prevent fraud, but relies on self-reporting and audits, which could lead to disputes over compliance.
Constitutional: Emphasizes non-government control to avoid Establishment Clause issues (which prohibits favoring religion), while protecting religious schools from exclusion—potentially inviting court challenges on church-state separation. Parental intervention rights streamline defenses but may complicate litigation.
Political: Advances school choice agendas, likely appealing to supporters of private education and limited government involvement, but could face opposition from public education advocates concerned about equity and public school funding. As a Republican-led bill, it reflects partisan divides on education policy.

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

Sponsor

Sen. Cassidy, Bill [R-LA]

Cosponsors (33)

Sen. Scott, Tim [R-SC], Sen. Cornyn, John [R-TX], Sen. Daines, Steve [R-MT], Sen. Thune, John [R-SD], Sen. Hyde-Smith, Cindy [R-MS], Sen. Schmitt, Eric [R-MO], Sen. Sheehy, Tim [R-MT], Sen. Budd, Ted [R-NC], Sen. Cotton, Tom [R-AR], Sen. Kennedy, John [R-LA], Sen. Tuberville, Tommy [R-AL], Sen. Justice, James C. [R-WV], Sen. Risch, James E. [R-ID], Sen. Barrasso, John [R-WY], Sen. Tillis, Thomas [R-NC], Sen. Marshall, Roger [R-KS], Sen. Young, Todd [R-IN], Sen. Hawley, Josh [R-MO], Sen. Britt, Katie Boyd [R-AL], Sen. Blackburn, Marsha [R-TN], Sen. McCormick, David [R-PA], Sen. Cramer, Kevin [R-ND], Sen. Wicker, Roger F. [R-MS], Sen. Lummis, Cynthia M. [R-WY], Sen. Ricketts, Pete [R-NE], Sen. Husted, Jon [R-OH], Sen. Hagerty, Bill [R-TN], Sen. Capito, Shelley Moore [R-WV], Sen. Banks, Jim [R-IN], Sen. Moreno, Bernie [R-OH], Sen. Boozman, John [R-AR], Sen. Graham, Lindsey [R-SC], Sen. Moody, Ashley [R-FL]

Recent Actions

2025-01-29: Read twice and referred to the Committee on Finance.
2025-01-29: Introduced in Senate

Bill Versions

Educational Choice for Children Act of 2025 — issued 2025-01-29 — PDF (22 pages)