Federal agencies weigh rules for new school choice tax credit as comments still incoming

Federal officials are weighing everything from accreditation requirements to accountability standards for private schools as they draft rules for a new federal school choice tax credit.

Although the public comment period closed Dec. 26, the Treasury Department and the Internal Revenue Service continue to accept late submissions. More than 3,200 comments have been filed so far.

At least 800 of those appear to be identical messages opposing school choice and urging increased public school funding. The remaining comments raise several recurring issues, based on a review of the comments and The 74’s analysis.

Among them are whether private schools must be accredited to participate, a requirement critics say could exclude smaller and more innovative schools; whether participating schools must administer standardized tests or comply with accountability measures similar to public schools; whether religious schools can continue to follow their beliefs in admissions and policy; and how much authority states will have to add their own rules.

“In writing these regulations, please make sure that there is not discrimination against religious education,” wrote Keith Hamblen, executive director of the Bible Christian Schools of Ohio.

“Actually, all education is inherently religious in that it deals with ultimate assumptions, values, ethics, morality, and ‘what is truth,’” Hamblen wrote. “Education and educational systems that attempt to educate apart from recognized underlying assumptions still have underlying assumptions that ultimately are faith based.”

What is a ‘school’?

Another unresolved issue is how the government defines a “school,” a question that affects religious schools and microschools, which often resist rigid classification.

The Newman Society, which represents Catholic schools, urged regulators to “explicitly define ‘school’ within the definition of ‘qualified elementary and secondary education expenses’ to mean any program of formal education that is legally permitted in the State in which it occurs.”

Don Soifer, head of the National Microschooling Center, made a similar request, arguing that no new definition is necessary.

Microschools already operate successfully in all 50 states despite the absence of a formal definition, Soifer said, and many already participate in state school choice programs in places such as Arizona and Florida.

The federal law, passed as part of the One Big Beautiful Bill, does not direct regulators to create new definitions or to give states additional authority to impose barriers to participation, Soifer told The Lion in an email.

“It seems it would be inappropriate, and outside the parameters of the federal law currently being considered, to use its authority to create new barriers for participation in this federal scholarship tax credit program,” he wrote, including barriers imposed by states that opt into the program. 

Other commenters urged regulators to adopt streamlined rules to maximize participation by students, scholarship organizations, taxpayers and schools.

The Federal Scholarship Tax Credit Coalition, which includes more than 200 school choice advocates, called for simple record-keeping requirements for nonprofit organizations, The 74 reported.

Potential for impact

Once implemented, about 3 million taxpayers could take the credit, generating between $2.7 billion and $6.1 billion annually, according to estimates from the Urban Institute. Taxpayers will be allowed to contribute up to $1,700 to scholarship-granting organizations in exchange for a federal tax credit, though funds can be used only in states that opt in.

States including Iowa, Louisiana, Texas and Nebraska have said they will participate. New Mexico, Wisconsin and Oregon have said they will not. Democratic governors Jared Polis of Colorado and Josh Stein of North Carolina have indicated they plan to opt in. North Carolina has broad school choice while Colorado does not.

One incentive for blue states to join the program is that it can support public school students through tutoring and enrichment programs, not just students in private schools.

While the tax credit will be available starting Jan. 1, 2027, it will take time to collect the funds and then distribute them to qualified students, who must be from families earning 300% or less of their area median income.

However, John Schilling, a consultant who lobbied for school choice, said organizations that gear up to receive donations at the start of the year will likely be able to grant scholarships for that fall’s school year.

The rule-making process is expected to take about six months, experts say, with an anticipated finish this summer.