What can you expect when the federal education tax credit takes effect next January? North Carolinians now have a better idea, based on a preview of guidance released last week by the U.S. Treasury Department. According to preview guidance, Treasury and the IRS plan to issue proposed regulations by the end of September.
North Carolina became a “Covered State”–participating in the tax credit– when the General Assembly overrode Governor Stein’s veto of House Bill 87, “Educational Choice for Children Act.” According to the U.S. Department of Education, North Carolina is the 28th state to opt in to the tax credit.
Formal guidance, according to recent remarks from Deputy Assistant Secretary for Tax Policy Kevin Salinger, is expected to note this:
- Eligible SGOs (scholarship granting organizations) must spend a minimum of 90% of income on scholarships.
- Being “located in” a state is defined as being authorized to do business there. The rules are expected to offer a path for SGOs to do business in multiple states.
- Schools served by scholarships include public, private, and religious schools “providing K-12 elementary and secondary education as defined under state law.” If “treated as a school under the law,” home schools are also eligible.
- Income verification for students will likely be through “paystubs, tax returns, IRS transcripts, Forms W-2, or through crediting agencies or commercial data sources”–or through participation in a needs-based government program.
Here’s the background information on the tax credit included in Treasury’s press release:
The new scholarship tax credit under section 25F is intended to expand educational opportunity by encouraging private contributions to scholarship-granting organizations. Participating States may opt in to the program and provide to the IRS a list of eligible scholarship-granting organizations located in their state. Scholarship-granting organizations that are included on one or more state SGO lists can receive qualified contributions from taxpayers and use those funds to provide scholarships for eligible students. Taxpayers who make qualified contributions may claim a federal tax credit, subject to applicable statutory requirements and forthcoming Treasury and IRS guidance.
The credit is designed to support scholarships for K–12 education expenses, helping families access educational options that meet their children’s needs. Treasury and the IRS are developing proposed regulations to provide States, scholarship-granting organizations, taxpayers, and other stakeholders with clear rules for implementation, compliance, reporting, and program integrity ahead of the credit’s expected 2027 launch.
Read more about the Treasury guidance from EdNC.
Public charter school families are eligible to participate. This fact sheet from the U.S. Department of Education notes the following uses:
Scholarships can be used for any qualified education expense of an eligible student, which includes a broad set of expenses incurred in connection with or required by any K-12 public, private, or charter school. Examples include tuition for students to attend private schools of choice, tutoring at public schools, and support services for students with disabilities.
For some families, this could mean using scholarships to pay for private school tuition at a school they choose. Other students will benefit from buying the equipment or uniforms needed for a career training program at a secondary school. Other families may seek a scholarship for tutoring or for after-school enrichment programs. The options are expected to vary in line with students’ unique academic needs, the focus of a particular SGO, and the educational opportunities available to students.
The American Federation for Children has a web page devoted to information about the tax credit. Learn more here.
Above: Shutterstock photo.
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