The 2025 reconciliation bill, signed into law by President Trump on July 4, 2025, included a provision that allows states to opt into participating in a federal tax credit scholarship program. This brief uses evidence to explain how such a federal tax credit might need to be implemented and raises questions for state policymakers.

Why This Matters

The federal tax credit scholarship could divert billions of federal dollars to K–12 students through donations to scholarship granting organizations (SGOs). Although many implementation questions are still unanswered, state leaders can take steps now to ensure they have the most complete understanding of how and whether this new federal policy could exist in their state.

Key Takeaways

Through my research of previous programs, I find the following:

• I estimate that, after a ramp-up period of a few years, 2.7 to 3.6 million tax filers may take the credit, diverting $2.7 to $6.1 billion in federal revenue annually. This estimate is highly dependent on program implementation, particularly regarding state-level take-up and implementation choices.
• Even though taxpayers cannot claim both federal and state tax credits for the same donation, the tax credit is unlikely to directly affect most donations made to current state tax credit programs, as many of these programs are more frequently taken up by corporations than by individual donors.
• Aside from determining whether to opt into the program, states will have to determine which SGOs and which purchases are eligible. States that opt into the credit may find that the biggest challenge is determining what scholarship recipients may purchase with their funding and how. Some states use private-sector companies to validate scholarship purchases, but contracts can be costly for both states and vendors.

State leaders considering whether to opt in can take steps to assess their current oversight of charities, private schools, and educational vendors; to consider ways to provide clear and trusted information for taxpayers and potential applicants; and to weigh whether supplementary state investment may allow the program to better align with state goals.

How I Did It

This brief uses evidence on similar state tax credit scholarships, on federal tax rulemaking, and on the regulation of charitable giving to bring evidence to current open questions around the implementation of this program.