Congress creates $10B tax break for private school donations, limits oversight

What it does

This bill creates a federal tax credit allowing individuals and corporations to deduct donations to nonprofit scholarship organizations that fund K–12 education for low-income students (up to 300% of area median income). Donors receive a credit of up to $5,000 per year (or 10% of adjusted gross income, whichever is greater) for individual contributions, and corporations receive a 5% credit on taxable income. The scholarships can be used for tuition at public, private, or religious schools, as well as tutoring, materials, and educational therapies. The bill includes a $10 billion annual volume cap (growing 5% in high-use years) and prohibits government entities from controlling scholarship organizations or excluding religious schools from the program.

Why we flagged it

The bill's core mechanism is a federal tax credit for donations to scholarship organizations, effectively using foregone tax revenue to subsidize K–12 education outside the public system. While framed as 'educational choice,' the operative structure is a tax expenditure—a form of public subsidy delivered through the tax code rather than direct appropriation.

What the text implies

• The $10 billion annual volume cap is allocated on a first-come, first-serve basis, creating a race-to-claim dynamic that may advantage wealthy donors and well-organized scholarship organizations over grassroots efforts.
• The bill's prohibition on government control of scholarship organizations and religious schools (Section 5) may insulate these entities from standard nonprofit accountability, audit, and nondiscrimination requirements that apply to public education.
• Scholarships can be 'formally committed but not distributed' and carried forward for multiple years, allowing organizations to hold funds indefinitely while claiming compliance with distribution requirements—reducing real-time accountability.
• The 10% safe harbor for administrative expenses means up to $1 billion annually (10% of $10B cap) can be spent on overhead rather than scholarships, with no requirement to justify the expense.
• By allowing scholarships for religious schools without government oversight, the bill may create a pathway for public tax dollars to fund religious instruction in ways that would violate the Establishment Clause if done directly.

Section numbers refer to the bill text the analysis read — linked under Primary records below.

Who it affects

The bill expands educational choice and funding for low-income families, a concrete public benefit; however, it does so primarily through foregone federal tax revenue (a $10 billion annual cost to the Treasury) that could otherwise fund public schools or other public goods. The mechanism also creates a tax incentive that disproportionately benefits higher-income donors (who can afford to give and benefit from the credit), while the scholarships themselves are capped at 300% of area median income

Who stands to gain

• Nonprofit scholarship granting organizations
• Private and religious K–12 schools
• High-income individual donors (via tax credits)
• Corporations (via tax credits)
• Tutoring and educational service providers

Named in the bill

Internal Revenue Service (IRS), Secretary of the Treasury, Scholarship granting organizations (501(c)(3) nonprofits), Private and religious K–12 schools, State governments, Eligible students (household income ≤300% area median income)

Where it stands

91 cosponsors: 90 Republicans, 1 Independents.

• Jan 31, 2025 — Introduced · Congress.gov: “Introduced in House”
• Jan 31, 2025 — Referred to House Committee on Education and Workforce and House Committee on Ways and Means · Congress.gov: “Referred to the Committee on Ways and Means, and in addition to the Committee on Education and Workforce, for…”

Dates and quoted wording are Congress.gov's action record; the timeline shows status changes, not every procedural step.

Money around this bill

3 lobbying clients named this bill on 4 disclosure filings across 2 quarters, Dec 2025 to Jun 2026. Those filings disclosed $100,000 in lobbying spend. A filing names 50 bills on average, so that figure is what each filing reported, not a share belonging to this bill.

More lobbying clients named this bill than 61% of bills with at least one filing.

Adrian Smith, the sponsor, reported $1,398,750 in PAC receipts in the 2026 cycle.

• Invest in Education Coalition — $60,000 on 1 filing
• Invest in Education Coalition — $20,000 on 1 filing
• National Council of Jewish Women — $20,000 on 2 filings

Lobbying Disclosure Act filings through Jul 20, 2026. A filing shows who paid to lobby on a bill it names, not what changed.