New Tax Credit Could Help Millions Of Kids Escape Failing Schools — If Their Governor Allows It

Americans will soon be able to redirect up to $1,700 of their federal income taxes to K-12 scholarships — but only if their governor wants them to.

The federal school choice tax credit, tucked into President Donald Trump’s One Big Beautiful Bill Act in July, launches Jan. 1, 2027. It’s the first federal credit of its kind: a dollar-for-dollar tax credits for donations to state-approved scholarship organizations that serve low- and middle-income families.

The catch? Governors must opt in.

Taxpayers in participating states can claim the nonrefundable credit for cash gifts funding private school tuition, tutoring, special-needs services and other qualified K-12 expenses. Advocates are calling it the Federal Scholarship Tax Credit.

“If governors opt in, children win, their states win, and our country will be better,” ACE Scholarships CEO Norton Rainey told the Daily Caller. “If governors choose not to opt in, kids will continue being left behind.” (RELATED: Major Teachers Union Bankrolled Advocacy Org Driving Anti-School Choice Propaganda)

It’s official—Texas has made history! 🇺🇸 Governor Abbott has signed SB2 into law, ushering in a powerful new era of school choice and opportunity for families across the state.
The future is bright for Texas students—and it starts now. pic.twitter.com/TknqVqFfii

— ACE Scholarships (@ACEscholarships) May 4, 2025

The mechanics are simple but potentially large. Governors submit lists of eligible SGOs to the Treasury. Their residents can then donate to those approved organizations and claim the credit. If a governor refuses to participate, his taxpayers can still donate to approved groups in other states and take the break anyway, according to IRS guidance.

Estimates from across the political spectrum suggest the uncapped program could eventually redirect tens of billions annually from Washington to private and religious schools. Democrats for Education Reform puts the long-term cost at roughly $24 billion a year.

But the program runs on federal tax dollars, not state budgets. Donors claim the credit on their federal returns and route the money through private scholarship organizations — meaning states don’t appropriate a dime. And the scholarships can cover more than tuition: academic tutoring, computers and other qualified expenses.

Rainey’s Denver-based nonprofit is positioning itself to capture a chunk of that flow. ACE Scholarships is one of the nation’s largest K-12 scholarship-granting organizations, with 25 years of experience running state tax-credit programs and private donations. The group says it has delivered about 121,000 scholarships worth $395 million across 13 states, and that its partner schools graduate nearly all ACE students — well above typical rates for low-income kids in district schools.

Now ACE is pitching itself as a ready-made national platform, touting what it calls a “world-class” scholarship management system that already handles state voucher, ESA and tax-credit programs. ACE calls the 2027 launch a “once-in-a-lifetime opportunity” — if even a fraction of the roughly 47 million potential donors participate.

“This is proven data over 25 years to show that school choice works,” Rainey said. “It’s the most powerful thing we can do for our country.”

Teachers and left-leaning policy groups are already urging Democratic governors to refuse. The National Education Association and allied organizations are calling the tax-credit scholarship a de facto federal voucher program that could shrink future education budgets and drain resources from public schools. Researchers at Brookings and the Urban Institute warn the design “opens the door to waste, fraud and abuse” and will tilt benefits toward wealthier families in states with robust private school markets.

Still, some Democrats are breaking ranks. Colorado Gov. Jared Polis — a longtime school choice supporter and past ACE donor — plans to opt in, according to The 74. That puts him at odds with counterparts in California and New York, who face heavy pressure from union allies to sit out.

Rainey argued that gubernatorial decisions will determine whether millions of lower-income kids stuck in failing schools will ever see a dime of what Congress just created.

“When parents have a choice, kids win,” he said, calling the 2027 tax credit “a game-changer” because “all 50 states … have the ability” to participate — if their governors say yes.