Virginia Governor Abigail Spanberger is signaling she may pull the state out of the new federal scholarship tax credit (FSTC), even though Virginia was originally the first state to sign on. If so, students in her state will not be able to access additional dollars made available through the federal scholarship tax credit, while students in most other states will.

At the federal and state levels, this new tax credit has been widely known and debated, and continues to be. Average voters, on the other hand, seem to know very little about it. That’s a problem.

Last week, the American Enterprise Institute also hosted an event on the new federal scholarship tax credit. It opened a panel discussion by asking each expert what they were optimistic about with the FSTC and what challenges they saw. The theme was clear: people are excited to see students’ lives change through more education choices, but they worry that a lack of awareness of the program threatens to make it less meaningful.

Panelist John Blew, advisor on the Federal Scholarship Tax Credit Coalition, said, “I don’t think many people know about the program. I know that from actually talking to CPA and tax experts; even they don’t know about this program. And in fact, when they hear about it, they have trouble believing it,” since it’s such good news, a way to help kids while costing nothing.

We hope to help change this by sharing more information.

Newly proposed and temporary rule

The FSTC rulemaking is moving forward. On October 1, the federal government released the much-anticipated proposed rule, which is now open for public comment, along with temporary companion rules so the FSTC can operate in 2027.

With the January 1, 2027 start fast approaching, I offer a few key takeaways from the new rules that taxpayers, parents, and states should know, and what this program means for children’s education more broadly.

Some interesting takeaways

For taxpayers

For taxpayers who want to take advantage of this tax credit for donating to scholarship-granting organizations, the rules clarified that married couples filing jointly can claim up to $3,400 in tax credit ($1,700 for individuals). That’s a great clarification and benefit for married couples where both want to donate to get this tax credit and help make these scholarships a reality. Note that donors must also be allowed to indicate which state they want their contribution going toward, so consider this question in advance.

Also, while it’s unclear how employers and tax preparers will incorporate this new tax credit opportunity into their processes, it’s worth asking your employer whether it will be a benefit and part of the open enrollment process. Those using outside tax preparers next year should ask how they can learn more; a side benefit is that more tax professionals are researching it and will be aware of it for other clients.

For microschool and homeschool students

The current proposed regulations say that to use scholarship funding for a student’s tuition and fees, the student must be enrolled in a public, private, or religious school as defined by each state’s statute, which leaves a big question about homeschool and microschool students. This section is tied to the Internal Revenue Code Section 530 language, which governs Coverdell Education Savings Accounts.

Utah law suggests this regulation would make it harder for homeschool and microschool students to receive federal scholarship funding, since “home-based micro schools” and “micro-education entities” are businesses and homeschool is an alternative to both public and private school. Many states have this issue, and the federal government seems aware of it. Congress likely intended to give all students this opportunity, since it didn’t clearly prohibit scholarships for students using these education options.

You can reach out to legislators to ask about this issue and/or give public comment on the current proposed rule.

For states

States that opt in to the program (Utah among them) must provide the IRS with a list of qualifying Scholarship Granting Organizations, which are the organizations parents actually apply to for scholarship funding. States aren’t required to submit the official list until February 15, 2027, but knowing which SGOs plan to serve families is helpful.

Many wondered whether states could add requirements on top of what the federal government outlined; the answer is no. If an SGO is compliant with federal rules, then it can go on the list and cannot be kept off by a governor. SGOs can still have unique missions, serve specific groups like private school students, and more. Altogether, this will increase the number and types of SGOs parents can seek for scholarship funding.

Why this tax policy matters so much to the education choice movement

As I’ve written many times, education choice is a broad umbrella goal. Rather than being synonymous with vouchers or ESAs, education choice includes expanding parents’ access to public, private, homeschool, and other options; providing funding where real financial constraints limit access; and giving parents enough information to make meaningful decisions.

Lack of funding often makes existing education choices inaccessible to families, which is why state policies like education savings accounts and tax credit scholarships matter.

The federal scholarship tax credit offers another way for families to access education options today, while a child is on their learning journey and needs help.

Luckily, Utah offers families public charter schools, open enrollment, a state tax credit scholarship for students with special needs, and the Utah Fits All Scholarship for any student, limited, of course, by funding.

However, because the Utah Fits All Scholarship program requires yearly appropriations and is underfunded relative to its waitlist, not everyone who needs a scholarship can get it. Furthermore, public school students are not eligible for the Utah Fits All Scholarship anyway.

What’s exciting is that this new Federal Scholarship Tax Credit offers another financial option for both private- and public-school students to access funding and get the education options they need to succeed. For example, depending on how this plays out, public school students might be able to access tutoring or technology they would otherwise have to pay for out of pocket to supplement their public education.

This new policy helps deliver on the real promise of education choice by offering options to all students. We hope more taxpayers and families can learn about this opportunity and take it.