Treasury and IRS reviewing public comments on the Federal Tax Credit Scholarship

With the recent release of America After 3 PM, we know demand for afterschool is high and American families, especially those with low and middle incomes, are finding it harder to access and afford programs. A new law may provide an opportunity for afterschool programs to serve more children.

The Federal Tax Credit Scholarship, which came into law in the 2025 Reconciliation bill (H.R. 1) under section § 25F, is currently being developed by the U.S. Department of the Treasury and the Internal Revenue Service. On December 26, Treasury and the IRS under Notice 2027-70, closed their first round of comment collection on the program, receiving more than 2,200 comments from the public.

How it works

The Scholarship program has the potential to provide a significant opportunity for parents with incomes up to 300% of the median income in their area (about $460,000 per household in Washington, DC or $300,000 in Freemont, Wyoming) to secure the afterschool and summer educational enrichment programming they want for their families.  

Under the law, eligible taxpayers who choose to donate receive a tax credit equal to their donation, up to $1,700. So that means taxpayers who, for example would have owed $5,700 to the IRS could instead give $1,700 to a nonprofit participating in the scholarship program and only owe the IRS the remaining $4,000. Donations are made to nonprofit organizations that want to participate, known as “scholarship granting organizations” (SGOs), which must use the funds to offer scholarships for “eligible students” to cover “qualified elementary and secondary education expenses” in a “public, private, or religious school, including “supplementary items and services (including extended day programs) which are required or provided by a public, private, or religious school in connection with such enrollment or attendance.” Learn more.

Although H.R. 1 references “extended day” programs as an allowable use of scholarship funds, meaningful access for families will depend largely on how Treasury and the IRS interpret legislation language and finalize the regulations implementing the law.

Receiving comments

As noted previously, the Afterschool Alliance submitted comments urging Treasury to recognize the essential role afterschool and summer programs play in the broader landscape of educational choice. The Alliance also emphasized the importance of ensuring families can realistically use the scholarship to support these afterschool and summer options whether programs are offered in public or private school settings, on school campuses, or through community-based providers.

In addition to the Afterschool Alliance’s comments, a broad range of organizations and individuals also submitted comments to Treasury reflecting an array of views on the tax credit. Encouragingly, many organizations specifically urged Treasury to explicitly confirm that scholarships may be used for afterschool and summer programs on and off school-sites. We also saw overwhelming agreement on a policy to allow scholarship granting organizations to focus on particular areas of expertise rather than needing to provide scholarships for all eligible uses. Such a policy would permit an SGO to specifically focus on private schools, parochial schools, tutoring, afterschool programs, or any combination thereof.

Commenters also seemed strongly aligned in interpreting the requirement that SGOs pass through 90% of their income in scholarships to be limited to the income coming from the scholarship contributions, not the total budget of an organization. Notably, we did not identify any submissions calling for limits on the use of scholarship funds for supplemental educational purposes, for example, limiting funds to only private educational settings.

Some of the organizations that recommended Treasury institute regulations more explicitly supportive of afterschool and/or summer learning included[1]:

• National School Boards Association
• National League of Cities
• Fight Crime Invest in Kids
• National Parents Union
• National Association of Education Foundations
• STEM Next
• Boys & Girls Clubs of America
• YMCA of the USA
• Every Hour Counts
• American Camps Association
• Save the Children
• Third Way
• Governor Jared Polis (CO)

All comments are posted on the Notice website. Despite what appeared to be significant alignment on certain areas, there was (not surprisingly) a number of other areas where comments contained a broad range of divergent preference: how much flexibility or oversight the governor should have over the list of SGOs in their state, eligibility verification methods, reporting metrics, alignment of the tax program to state laws governing their educational settings, and guardrails for areas including waste, fraud, and abuse as well as civil rights protections.

The Afterschool Alliance wants to thank all organizations and individuals who took the time to communicate on the tax credit scholarship program on behalf of our field. The program presents what could be an historic opportunity to support parents with the power to choose the affordable, high quality, enriching afterschool and summer learning opportunities they want and need for their children’s educational pathway.  

What’s next?

1. We expect Treasury/IRS will review these comments in the coming months to prepare a Notice of Federal Rulemaking, integrating some of the feedback. We hope the voices of the afterschool field will be reflected in that notice and look forward to an additional opportunity to comment. We will communicate with the field when we see what form the rulemaking process takes next.  
    
2. Non-profit organizations, will continue to assess their capacity and willingness to become scholarship granting organizations in order to serve eligible students and collect tax donations once the regulations have been finalized. Additionally, entities that could be recipients of eligible uses of scholarship dollars may begin engaging in outreach to key audiences about the upcoming potential of the tax scholarships. (Visit St. Mary’s Ryken’s page on the tax scholarship and FACTS’ recent blog post to see two examples).
    
3. The law requires states to opt in to the program through their Governor’s Office or other legally designated functionary as early as January 1, 2026. Recently Treasury and the IRS provided a form for governors to provide their Advance Election to participate in the tax credit program. While the program only officially requires opting in by January 2027, some states are electing into the program early to provide an opportunity to help potential scholarship granting organizations have time to structure ahead of operations next year. Several governors have spoken about their commitment, while not yet formally enrolling. However, given that the regulations have yet to be finalized, other states are waiting for the final sense of how the program will operate. Even with the January 2027 deadline for governors to opt in for participation in the first year, governors will have the additional opportunity to opt in every calendar year.