US Treasury previews rules for new school-choice tax credit

States that have opted into the new Education Freedom Tax Credit — including North Carolina — won’t have much room to write their own rules for the program, according to a preview of federal guidance from the US Treasury Department released June 10.

That constraint could complicate Gov. Josh Stein’s wish to direct the funds toward public-school students rather than students enrolled in school-choice alternatives.

The new guidance from the Treasury Department offers an early look at how it intends to implement the credit, authorized by the One Big Beautiful Bill Act that President Donald Trump signed July 4, 2025. The preview indicated that states may not impose requirements on Scholarship Granting Organizations (SGOs) that are stricter than what federal law lays out.

Proposed regulations are expected by the end of September, with taxpayers able to rely on the rules for the 2027 tax year and donations becoming creditable in January 2027.

“Under President Trump’s leadership, we are taking a transformative step toward an education system that fits the student rather than the other way around,” said Treasury Secretary Scott Bessent in a statement. “At Treasury, we take seriously the work of implementing this federal tax credit faithfully and effectively. We are committed to providing certainty to states, scholarship-granting organizations, taxpayers, and families alike, as well as making certain that this process is easy to navigate.”

Supporters of the credit said the preview of federal guidance is a safeguard against states watering down the program.

“The clock is ticking for governors who have been sitting on the sidelines,” said Tommy Schultz, CEO of the American Federation for Children, a national school-choice advocacy organization, in a statement. “Treasury has made clear that this tax credit will have strong safeguards against misspending, that students across educational settings can receive scholarships, and that states cannot use regulatory red tape to kill this tax credit.”

“Every family deserves access to the education that’s right for their child, and every governor who has pledged to act once the rules were clear must now do exactly that,” Schultz added. “The time to opt in is now. AFC will continue to stand with parents seeking this life-changing opportunity.”

North Carolina recently joined a growing list of states that have opted into the program after the state House and Senate completed the veto override of House Bill 87.The General Assembly assigned the NC State Education Assistance Authority (NCSEAA) — not the governor’s office — to maintain the list of approved scholarship organizations and submit it to Treasury.

That leaves Stein doubly constrained: He could not block the opt-in, and he is not the one administering the program. When he vetoed HB 87, Stein said he would have opted in himself had it been clearer how the program could serve public school students. The governor signaled he wanted to direct donations toward public school-supporting organizations once federal guidance arrived. The Treasury preview’s limits on state-imposed rules narrow that path further.

Robert Luebke, director of the Center for Effective Education at the John Locke Foundation, said public-school advocates were conspicuously absent from the debate until recently. He noted that public schools were “well represented” at the Treasury briefing in Washington, then questioned the timing.

“I wonder where they were last August when Gov. Stein vetoed tax credit legislation,” Luebke said. The federal credit “can turbocharge school choice,” he added. “I’m glad school officials in both the public and private sectors are beginning to realize it.”

Sen. Michael Lee, R-New Hanover, who sponsored North Carolina’s opt-in legislation, has argued the program reaches well beyond private schools. “A lot of folks have kind of just tied this to private schools or other types of non-public type institutions. That’s really not true,” Lee said during Senate floor debate. “This really applies to all children in all schools.”

Under the program, individuals can claim a federal tax credit of up to $1,700 a year for donations to approved SGOs, which in turn award scholarships to students. A donor who can’t use the full credit in the year of the contribution can carry the unused portion forward for up to five years. 

While the donor credit is capped at $1,700, the scholarships themselves are not — award amounts are set by each organization. Eligible expenses include private-school tuition, but also tutoring, transportation, special-education services, books, supplies, and technology. Some of those funds can support public school students through supplemental programs that schools are not required to provide for free.

Scholarships go to students eligible to enroll in a public elementary or secondary school whose household income is no greater than 300% of the area’s median gross income.

“US Treasury previews rules for new school-choice tax credit” was originally published on www.carolinajournal.com.