IRS Will Go ‘As Broad As We Can’ With Federal K-12 Choice Rules

Federal regulators are working “aggressively and quickly” to issue guidelines spelling out how K-12 students can use federally bankrolled tax-credit scholarship funds on “a large range of educational needs,” a top official overseeing the soon-to-launch federal education choice program said Thursday.

The Internal Revenue Service is “targeting by the end of the year” to publish an update to the draft program regulations it released in October, according to Kevin Salinger, the Treasury Department’s acting assistant secretary for tax policy and acting chief counsel.

“We are going as broad as we can in terms of reading the statute to include as many education-related expenses within the bounds of what the statute allows,” Salinger said here Thursday during a post-midterm elections event hosted by Whiteboard Advisers, a public relations firm.

Starting Jan. 1, individual taxpayers nationwide can begin contributing funds to scholarship-granting organizations in at least 32 states that have opted in to the program. They’ll receive dollar-for-dollar federal tax credits of up to $1,700 in return.

The governors of the remaining states and the mayor of the District of Columbia have until Dec. 31 to decide whether to allow SGOs to operate in their states and offer funds to their states’ students.

Education advocates across the political spectrum for months have been eagerly anticipating detailed Internal Revenue Service guidance that spells out what students can and can’t use the money to cover—particularly for public and charter schools, which don’t charge tuition.

The federal law allows use of the scholarships on tuition as well as a handful of broadly defined expenses that can apply to public school students, such as before- and after-school programs, tutoring, “special needs services,” and technology.

Some public school administrators and advocates worry that tuition-charging private schools—especially in states that already have their own tax-credit scholarship programs—will more easily benefit from the scholarship funds than they will. Many public school districts have limited experience or comfort with setting up nonprofit organizations, navigating tax policy, or collecting fees from students.

Those aren’t the only concerns over allowable expenses. A coalition of 12 disability advocacy groups wrote to Salinger last week urging him to emphasize that “no scholarship funds should be used for any services to which a student is entitled under applicable federal or state law.”

Salinger on Thursday didn’t mention specific details of expenses that are and aren’t eligible.

“President Trump, Secretary [of the Treasury Scott] Bessent, this entire administration, are big believers in this credit, and believe that this is going to fundamentally change the way that education works in the United States,” Salinger said. “We want this to be a success.”

Treasury rolling out public awareness campaign

The IRS is also focused on publicizing the availability of the credit and the potential for scholarships to benefit students.

In recent weeks, Salinger said, Treasury officials have met with tax return preparers in hopes of setting up automatic notifications directing tax filers this spring to donate to scholarship-granting organizations.

“The way that this credit works hasn’t fully seeped into the public consciousness yet, or even the consciousness of the state governments, even in the states that have opted in,” Salinger said.

Treasury also plans to “very soon” release guidance for employers on setting up payroll deductions for employees who want contributions to SGOs of their choosing to come directly out of their paychecks, Salinger said.

Some school districts, including in Fort Wayne, Ind., are already laying the groundwork for their employees to contribute to affiliated scholarship-granting organizations out of their paychecks to fuel scholarships for their students.

“We are entering a world where the folks who are accustomed to giving to education are going to be a very small portion of the possible donor pool here,” Salinger said. “We need to get this message out to not only them, but to people who do charitable giving every year, and even to people who have never done charitable giving in their life.

“But now it’s free to do so, so why not?”