HR 817119th CongressIn Committee

To amend the Internal Revenue Code of 1986 to allow a credit against tax for charitable donations to nonprofit organizations providing education scholarships to qualified elementary and secondary students.

Introduced: Jan 28, 2025

Standard Summary

Comprehensive overview in 1-2 paragraphs

H.R. 817 would create a new federal tax credit (Section 25F) for individuals who donate cash or marketable securities to scholarship granting organizations that provide scholarships for qualified elementary and secondary education expenses to eligible students. The bill defines eligible students as those in households with income up to 300% of the area median gross income who are eligible to enroll in public schools. The credit is limited by per-taxpayer and program-wide caps, tracked in real time, and can be carried forward for up to five years. Donations to eligible organizations would also be exempt from gross income when used to fund scholarships (Sec. 139J). The bill includes detailed standards for scholarship granting organizations (audits, income verification, anti–self-dealing rules) and would prohibit government control over these organizations or participating private/religious schools, while affirming parental rights to use scholarships. There is also a separate rule to deny a tax credit for qualified contributions if an organization fails to meet distribution requirements. The program would run from 2025 through 2028 at a total annual volume cap of $5 billion, after which the credit would be zero unless extended or modified.

Key Points

1Creation of a new individual tax credit (Section 25F) for qualified contributions to scholarship granting organizations that fund elementary/secondary education scholarships.
2Credit amount and limits: the credit equals the sum of a taxpayer’s qualified contributions for the year, but cannot exceed the greater of 10% of that taxpayer’s adjusted gross income or $5,000; it is also subject to a yearly volume cap and any state tax credits the taxpayer may receive.
3Volume cap and administration: a $5 billion annual volume cap (calendar years 2025–2028; zero thereafter), allocated on a first-come, first-served basis with 10% of the cap available to the states. A real-time tracking system would monitor contributions; annual publication of the cap is required; caps can increase in subsequent years after high-use years.
4Eligible contributions and expenses: “qualified contributions” are cash or marketable securities donated to a scholarship granting organization; “qualified elementary or secondary education expenses” include tuition, curriculum, books, online materials, tutoring (under specified conditions), standardized tests, dual enrollment, educational therapies, and homeschooling-related costs.
5Eligible students: households with income up to 300% of the area median gross income and who are eligible to enroll in public schools.
6Scholarship granting organizations: must be 501(c)(3) organizations (not private foundations), primarily provide scholarships, maintain separate accounts for qualified contributions, meet financial/audit standards, and have anti–self-dealing safeguards. They must pass income verification requirements and obtain annual independent CPA audits.
7Denial of double benefit: amounts donated as qualified contributions for the credit cannot also be treated as charitable deductions under section 170.
8Exemption of scholarships from gross income: amounts provided to eligible students via scholarships funded by these organizations would not be included in the recipients’ gross income.
9Organizational and parental autonomy: limits governmental control over the scholarship organizations and non-public schools, ensures parental rights in using scholarships, and provides a right for parents to intervene in constitutional challenges supporting the program.
10Failure to distribute receipts: if a scholarship granting organization is determined to fail distribution requirements, new contributions to that organization would not qualify for the credit.
11Effective dates: the 25F credit and related provisions apply to taxable years ending after December 31, 2024 (with other sections aligning to 2024–2025 timeframes as specified).

Impact Areas

Primary group/area affected- Families of eligible students (up to 300% of area median income) seeking alternatives to traditional public school options.- Donors to eligible scholarship granting organizations, who would receive a nonrefundable federal tax credit for their contributions.- Scholarship granting organizations themselves (70s–501(c)(3) nonprofits focusing on scholarships), including compliance, audits, recordkeeping, and distribution requirements.Secondary group/area affected- Private and religious elementary and secondary schools that could receive scholarship funds.- Public schools and education policymakers, due to potential shifts in enrollment patterns and resource allocation.- State governments and tax departments, because the program interacts with state tax credits and requires state-level administration of the 10% state allocation and potential coordination with state laws.Additional impacts- Revenue effects for the federal government, given a sizable, capped tax credit; would depend on donor participation and the volume cap utilization.- Administrative and compliance costs for donors and scholarship organizations (audits, income verification, real-time tracking, annual reporting).- Legal and constitutional considerations, given the autonomy protections for parental rights and the limited governmental control over participating schools and organizations; potential litigation over the program’s design or scope.- Effects on homeschool families, who would be eligible under the qualified expense definition when they participate in scholarship funding.

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