The U.S. Treasury Department and the Internal Revenue Service released rules on October 1, 2026 for a new federal tax break that pays for private school scholarships. The rules do not give Democratic governors the control over the program that some said they needed, according to Chalkbeat. That matters because governors have until midnight on January 1 to opt in for next year, according to Chalkbeat.
The program is called the Education Freedom Tax Credit. Treasury and the IRS issued the rules under Section 25F and announced them as IR-2026-117, according to the IRS. Congress passed the credit in 2025 as part of the One Big Beautiful Bill Act. Treasury previewed the rules in June 2026, according to the IRS and Chalkbeat.
Here is how it is set up to work, according to the IRS and Chalkbeat. Starting January 1, 2027, a taxpayer can donate up to $1,700 to a scholarship-granting organization. In return, the taxpayer gets back a federal tax credit of the same amount. Married couples who file jointly can claim up to $3,400. The organizations then give the money to families for K-12 scholarships.
The rules run 181 pages but leave some questions open, according to Chalkbeat. They do not let Democratic governors shape the program to make sure it helps the neediest students. Some governors said that was what they most wanted. States also cannot pick which scholarship groups qualify. Oregon Gov. Tina Kotek had called that limit a possible deal-breaker. Her office said she is reviewing the rules but has no plans to change her position, according to Chalkbeat.
So far 30 states have said they will participate, according to the IRS. New York Gov. Kathy Hochul said she plans to join unless she finds a problem. Besides Hochul, 18 Democratic governors still need to decide, according to Chalkbeat. On October 2, 2026, supporters pushed them to move fast while the governors kept reviewing the rules, according to Chalkbeat. "Now you can see them, and it's time to get going," said former Virginia Gov. Glenn Youngkin, a Republican who was the first governor to opt in back in 2025, according to Chalkbeat. Treasury Secretary Scott Bessent said, "The Education Freedom Tax Credit marks a new chapter in educational freedom and opportunity by establishing America's first nationwide school choice program," according to the IRS.
Treasury and the IRS also shared estimates of how big the program could grow. By 2030, they estimate it could support 600 to 700 scholarship-granting organizations. They also estimate that more than 11 million taxpayers could give nearly $26 billion each year. That money could fund as many as 2.2 million scholarships a year, according to the IRS. These are projections, not current totals. Split among more than 11 million taxpayers, nearly $26 billion comes to about $2,360 each. That fits the $1,700 to $3,400 range the rules allow per return. The figures are not broken down further, so read them as separate estimates, not numbers that add up to a fixed total.