IRS issues rules for education tax credit designed to encourage donations for student scholarships

The federal government has released proposed rules to implement the education freedom tax credit that empowers Americans to donate money to student scholarships.The proposed regulations from the Department of the Treasury and the Internal Revenue Service allow eligible taxpayers to claim an annual credit of up to $1,700 for qualifying contributions to scholarship granting organizations or up to $3,400 for married couples filing jointly.
The agencies also issued companion temporary regulations to establish procedures for states and SGOs to prepare for the tax credit’s launch on Jan. 1.
“Thirty states have already opted in, and we encourage all 50 states to participate so every American student and family can benefit,” Treasury Secretary Scott Bessent said in a statement Thursday.
Twenty-three states opted in by January of this year, when Illinois Gov. J.B. Pritzker questioned whether the federal credit could be useful or a way to move money from public schools to private schools.
Illinois state Sen. Neil Anderson, R-Andalusia, said Pritzker should opt in.
“If Gov. Pritzker decides not to, this comes down to simply personality conflicts between him and the president. We can’t let personality and politics get in the way of good policy,” Anderson said.
Colleen Hroncich, a policy analyst with Cato’s Center for Educational Freedom, said the Treasury took a light-touch approach to the proposed regulations.
“One disappointing aspect is that Treasury chose a narrow definition of ‘school’ that will exclude homeschoolers and microschoolers in many states, Hroncich said in a statement.
Hroncich said there is still time to make a correction and launch the program with greater freedom and flexibility.
Earlier this year, Chicago homeschool advocate Latasha Fields said Illinois should support the program instead of raising taxes to fund education.
“Families need this support, right? We shouldn’t block families from having this type of dollar for dollar program,” Fields said, adding that Illinoisans can still make donations.
“The way the program is outlined, we can still give, but unfortunately, if Gov. Pritzker does not opt in, our children in this state would not benefit,” Fields said.
Teachers unions in Illinois and across the country have urged states to reject the scholarship initiative.
Juan Rangel, president and CEO of The Urban Center, said the unions oppose the program because it helps schools outside of the public school system.
“That puts into question, in my mind, what their interests are. If it’s not about children, what is it? And it is about politics, it is about power,” Rangel told The Center Square.
Sean Reed and Greg Bishop contributed to this story

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