Universal School Choice Act
The Universal School Choice Act would create a federal tax credit program to encourage charitable donations to nonprofit scholarship granting organizations (SGOs) that fund scholarships for eligible elementary and secondary students. Individuals could claim a credit equal to their qualified contributions, subject to a cap (10% of adjusted gross income or $5,000, whichever is higher) and a national volume cap that must be allocated to states. Corporations could also claim a separate tax credit (up to 5% of taxable income) for qualified contributions. In return, SGOs must meet rigorous governance and auditing requirements, ensure targeted use of funds for qualified education expenses, and operate with strong protections against self-dealing. The bill also includes an exemption from gross income for scholarships provided to eligible students and establishes a framework for state-by-state allocation, real-time tracking of credits, and parental/organizational autonomy from government control. Home schooling is included in the scope of eligible expenses. In short, the bill aims to dramatically expand school choice by funding scholarships through tax credits to donors, while imposing significant oversight on SGOs and requiring that most benefits flow to eligible students through qualified education expenses.
Key Points
- 1Tax credits for donations to scholarship granting organizations:
- 2- Individuals can claim a credit equal to their qualified contributions, with a cap equal to the greater of 10% of AGI or $5,000 per taxpayer per year.
- 3- Corporate donors can claim a separate credit equal to the amount of qualified contributions, up to 5% of the corporation’s taxable income.
- 4- Both credits are limited by a national volume cap and state allocations, with a provision to reduce individual credits by any state tax credits claimed.
- 5Qualified contributions and eligible expenses:
- 6- A qualified contribution is a cash or marketable security gift to an SG0.
- 7- Qualified elementary/secondary education expenses include tuition, fees, curricula, books, online materials and required hardware/software, tutoring (under specific qualifications), standardized tests, dual enrollment, therapies, and transportation, plus homeschooling expenses.
- 8- Home schooling expenses are included; payments to family members are prohibited.
- 9Scholarship Granting Organizations (SGOs) criteria:
- 10- Must provide scholarships to at least two students (not all to the same school).
- 11- Must use funds only for qualified education expenses; priority for scholarships to current recipients, siblings, and lower-income families (with income verification).
- 12- Must not earmark funds for specific students at the donor’s direction and must undergo annual independent audits.
- 13- No officer/board member can have felony convictions; rules to prevent self-dealing.
- 14Denial of double benefits and AMT:
- 15- Contributions eligible for the credit cannot also be deducted as charitable contributions for other purposes.
- 16- The credit can be used for AMT calculations.
- 17Volume cap and state allocations:
- 18- A national cap of $10 billion starts in 2026, with a state-by-state allocation system.
- 19- States receive initial allocations and then ongoing allocations based on population of children aged 5-17 and/or poverty levels; a minimum allocation is guaranteed for each state.
- 20- Taxpayers must designate a distribution state for their qualified contribution; the designation binds the SGOs and must stay within the cap for that state.
- 21- Unclaimed credits can be reallocated on a first-come, first-served basis later in the year.
- 22Tax treatment and timing:
- 23- Scholarships funded through these credits are exempt from gross income to the recipient (the scholarship recipient’s family does not pay tax on the scholarship funds).
- 24- The act applies to amounts received after December 31, 2025, with credits commencing in subsequent tax years and the volume cap beginning in 2026.
- 25Autonomy and parental rights:
- 26- SGOs would operate with minimal government control over day-to-day activities.
- 27- Private and religious schools could not be barred or discriminated against based on religious affiliation when participating in the program.
- 28- Parents have rights to intervene in court proceedings challenging provisions of the act, and parents of eligible students who receive scholarships can participate in supporting constitutional challenges.