Treasury releases rules for nation's first federal school voucher program

The Treasury Department has proposed rules for the Federal Scholarship Tax Credit, the first federal school choice program, set to launch on January 1, 2027. The program offers dollar-for-dollar tax credits up to $3,400 for married couples donating to K-12 scholarship organizations, aiming to generate $26 billion annually. While 30 states have opted in, the program faces intense political division. Opponents warn of funding diversion and point to Florida's accountability issues, while supporters urge Democratic governors to opt in to secure tutoring and educational resources for public school students.

Timeline and implementation of the program

• ▪The Federal Scholarship Tax Credit program was signed into law in 2025 by President Donald Trump as part of a signature tax breaks and spending cuts bill, the GOP's 2025 domestic policy and tax law
• ▪The Treasury Department proposed regulations on October 1, 2026, to launch the Federal Scholarship Tax Credit, the nation's first federal school choice scholarship program, on January 1, 2027.
• ▪The Treasury Department will hold a public hearing on the proposed Federal Scholarship Tax Credit regulations on December 15, 2026, following a 60-day public comment period.

Student eligibility requirements

• ▪Students in participating states are eligible for the Federal Scholarship Tax Credit if their family income is up to three times the area's median income.
• ▪The proposed Federal Scholarship Tax Credit rules allow low-income applicants to use proof of participation in government assistance programs, and foster children require no income verification

Funding and tax credit limits

• ▪The IRS and Treasury Department estimate the Federal Scholarship Tax Credit will eventually generate $26 billion in annual contributions, funding up to 2.2 million scholarships annually
• ▪The Federal Scholarship Tax Credit program allows individual taxpayers to receive a dollar-for-dollar federal tax credit of up to $1,700, and married couples up to $3,400, for donations to scholarship-granting organizations.

State participation and decisions

• ▪As of mid-September 2026, at least 30 states have opted into the Federal Scholarship Tax Credit program for 2027, while governors of Arizona, Minnesota, Wisconsin, and Oregon have declined to participate.
• ▪California has not opted into the Federal Scholarship Tax Credit program, and federal rules prevent states from narrowing scholarship uses to public school students only.
• ▪New York Democratic Governor Kathy Hochul has expressed support for the Federal Scholarship Tax Credit program, and the state is expected to participate.

Debate over the tax Credit program

• ▪American Federation of Teachers President Randi Weingarten and congressional Democrats oppose the Federal Scholarship Tax Credit, arguing it funnels public funds to private school tuition
• ▪The Massachusetts Association of School Superintendents opposes the Federal Scholarship Tax Credit, stating that local school districts lack the fundraising infrastructure of private school networks
• ▪Some moderate Democrats, including Colorado Governor Jared Polis and former Education Secretary Arne Duncan, have advocated for opting in to benefit public school students.

Issues with Florida's voucher program

• ▪A state audit found that Florida's voucher program could not account for the school enrollment of 30,000 children or the $270 million associated with them.
• ▪Florida's universal school voucher program, which expanded in 2023 to eliminate income caps, costs taxpayers over $4 billion annually and has faced significant cost overruns.

Academic impact of vouchers

• ▪Academic studies in Louisiana, Ohio, and Indiana indicate that voucher students' academic outcomes suffer in comparison to those of public school students.
• ▪Researcher Josh Cowen compared the learning loss experienced by voucher students to the learning loss seen after Hurricane Katrina.

Debatable claims

• ▪Extending school voucher eligibility to high-income families is justified
• ▪Public school districts face an unfair disadvantage in fundraising under the tax credit program
• ▪The Federal Scholarship Tax Credit program does more harm than good
• ▪Democratic governors should opt in to the Federal Scholarship Tax Credit program