A $1,700 school-choice tax credit

What if you could decide where $1,700 of your federal income tax goes? Starting January 1, you can.

The idea works a little like a church second collection, the one taken up for a particular cause. The difference is that the IRS hands every dollar back. Give $1,700 to an approved scholarship group, and your federal income tax drops by $1,700. Married couples filing jointly can give and claim up to $3,400. The money goes to a K-12 student's tuition, tutoring or school supplies instead of the general Treasury.

How the money reaches a family

The law, part of the 2025 tax package, created the Education Freedom Tax Credit. Donors give cash to nonprofit scholarship-granting organizations, called SGOs. The SGOs award scholarships to students, and the money can pay for private-school tuition, tutoring, special-needs services, books, supplies, computers and other qualified expenses. Children who stay in public school can use it too, for tutoring or before- and after-school programs.

A student must be eligible to attend public school in the state, and the household's income must be no more than 300% of the area median. Children whose families already receive need-based benefits, and foster children, qualify automatically; Treasury estimates about 96% of children in participating states will be eligible. The law sets no award size, so each scholarship depends on how many people give, and Treasury projects up to 2.2 million scholarships a year by 2030. Families do not apply to the IRS; they apply to the scholarship groups their state lists.

Thirty-one states and counting

Donors can live anywhere. Scholarships, though, flow only to children in states that opt in. As of the IRS's September list, 30 states were in, including Colorado and Virginia, which both have Democratic governors. On October 9, New York Gov. Kathy Hochul made it 31, saying she would not "leave money on the table when it could help our kids." States have until January 1 to opt in for 2027 and until February 15 to send the IRS their list of scholarship groups.

Teachers unions and some Democratic governors see the program as a voucher that pulls attention and money from public schools. I understand the worry; public schools educate most American children, and every town needs good ones. But no state education budget pays for these scholarships. Private donors do, with their own federal tax dollars, and public-school students can use the scholarships for tutoring. A governor who opts out does not stop residents from donating; opting out only sends their money to children in other states.

Here is what to do this fall. Check the IRS's Federal Scholarship Tax Credit page to see whether your state is on the list. If it is, watch for your state's roster of scholarship groups, due February 15, and contact one about applying for next school year. If it is not, call your governor's office before January 1. And if you owe federal tax, put a $1,700 gift on your January calendar. It is the only second collection where the IRS pays the giver back.