H.R. 833

[Congressional Bills 119th Congress]
[From the U.S. Government Publishing Office]
[H.R. 833 Introduced in House (IH)]

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119th CONGRESS
1st Session
H. R. 833

To amend the Internal Revenue Code of 1986 to allow a credit against 
tax for charitable donations to nonprofit organizations providing 
education scholarships to qualified elementary and secondary students.

_______________________________________________________________________

IN THE HOUSE OF REPRESENTATIVES

January 31, 2025

Mr. Smith of Nebraska (for himself, Mr. Owens, Mr. Walberg, Mr. Kelly 
of Pennsylvania, Mr. Yakym, Mr. LaHood, Ms. Letlow, Mrs. Miller-Meeks, 
Mr. Donalds, Ms. Tenney, Mr. Moore of Utah, Mr. Feenstra, Ms. 
Malliotakis, Mr. Hern of Oklahoma, Mr. Lawler, Mr. Fong, Mr. Carey, Mr. 
Hudson, Ms. Salazar, Mr. Scott Franklin of Florida, Mr. Crenshaw, Mr. 
Wilson of South Carolina, Mr. Rose, Mr. Weber of Texas, Mr. Ciscomani, 
Mr. Moolenaar, Mr. Allen, Mr. Dunn of Florida, Mr. Murphy, Mr. Cline, 
Mr. Meuser, Mr. Timmons, and Mr. Bergman) introduced the following 
bill; which was referred to the Committee on Ways and Means, and in 
addition to the Committee on Education and Workforce, for a period to 
be subsequently determined by the Speaker, in each case for 
consideration of such provisions as fall within the jurisdiction of the 
committee concerned

_______________________________________________________________________

A BILL

To amend the Internal Revenue Code of 1986 to allow a credit against 
tax for charitable donations to nonprofit organizations providing 
education scholarships to qualified elementary and secondary students.

Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the ``Educational Choice for Children Act 
of 2025''.

SEC. 2. TAX CREDIT FOR CONTRIBUTIONS TO SCHOLARSHIP GRANTING 
ORGANIZATIONS.

(a) Credit for Individuals.--
(1) In general.--Subpart A of part IV of subchapter A of 
chapter 1 of the Internal Revenue Code of 1986 is amended by 
inserting after section 25E the following new section:

``SEC. 25F. QUALIFIED ELEMENTARY AND SECONDARY EDUCATION SCHOLARSHIPS.

``(a) Allowance of Credit.--In the case of an individual who is a 
citizen or resident of the United States (as defined in section 
7701(a)(9)), there shall be allowed as a credit against the tax imposed 
by this chapter for the taxable year an amount equal to the aggregate 
amount of qualified contributions made by the taxpayer during the 
taxable year.
``(b) Limitations.--
``(1) In general.--The credit allowed under subsection (a) 
to any taxpayer for any taxable year shall not exceed an amount 
equal to the greater of--
``(A) 10 percent of the adjusted gross income of 
the taxpayer for the taxable year, or
``(B) $5,000.
``(2) Allocation of volume cap.--The credit allowed under 
subsection (a) to any taxpayer for any taxable year shall not 
exceed the amount of the volume cap allocated by the Secretary 
to such taxpayer under section 3 of the Educational Choice for 
Children Act of 2025 with respect to qualified contributions 
made by the taxpayer during the taxable year.
``(3) Reduction based on state credit.--The amount allowed 
as a credit under subsection (a) for a taxable year shall be 
reduced by the amount allowed as a credit on any State tax 
return of the taxpayer for qualified contributions made by the 
taxpayer during the taxable year.
``(c) Definitions.--For purposes of this section--
``(1) Eligible student.--The term `eligible student' means 
an individual who--
``(A) is a member of a household with an income 
which is not greater than 300 percent of the area 
median gross income (as such term is used in section 
42), and
``(B) is eligible to enroll in a public elementary 
or secondary school.
``(2) Qualified contribution.--The term `qualified 
contribution' means a charitable contribution (as defined by 
section 170(c)) to a scholarship granting organization in the 
form of cash or marketable securities.
``(3) Qualified elementary or secondary education 
expense.--The term `qualified elementary or secondary education 
expense' means the following expenses in connection with 
enrollment or attendance at, or for students enrolled at or 
attending, a public or private elementary or secondary school 
(including a religious elementary or secondary school):
``(A) Tuition.
``(B) Curricula and curricular materials.
``(C) Books or other instructional materials.
``(D) Online educational materials.
``(E) Tuition for tutoring or educational classes 
outside of the home, including at a tutoring facility, 
but only if the tutor or instructor is not related to 
the student and--
``(i) is licensed as a teacher in any 
State,
``(ii) has taught at--
``(I) a public or private 
elementary or secondary school, or
``(II) an institution of higher 
education (as defined in section 101(a) 
of the Higher Education Act (20 U.S.C. 
1001(a)), or
``(iii) is a subject matter expert in the 
relevant subject.
``(F) Fees for a nationally standardized norm-
referenced achievement test, an advanced placement 
examination, or any examinations related to admission 
to an institution of higher education.
``(G) Fees for dual enrollment in an institution of 
higher education.
``(H) Educational therapies for students with 
disabilities provided by a licensed or accredited 
practitioner or provider, including occupational, 
behavioral, physical, and speech-language therapies.
Such term shall include expenses for the purposes described in 
subparagraphs (A) through (H) in connection with a home school 
(whether treated as a home school or a private school for 
purposes of applicable State law).
``(4) Scholarship granting organization.--The term 
`scholarship granting organization' means any organization--
``(A) which--
``(i) is described in section 501(c)(3) and 
exempt from tax under section 501(a), and
``(ii) is not a private foundation,
``(B) substantially all of the activities of which 
are providing scholarships for qualified elementary or 
secondary education expenses of eligible students,
``(C) which prevents the co-mingling of qualified 
contributions with other amounts by maintaining one or 
more separate accounts exclusively for qualified 
contributions, and
``(D) which either--
``(i) meets the requirements of subsection 
(d), or
``(ii) pursuant to State law, was able (as 
of the date of the enactment of this section) 
to receive contributions that are eligible for 
a State tax credit if such contributions are 
used by the organization to provide 
scholarships to individual elementary and 
secondary students, including scholarships for 
attending private schools.
``(d) Requirements for Scholarship Granting Organizations.--
``(1) In general.--An organization meets the requirements 
of this subsection if--
``(A) such organization provides scholarships to 2 
or more students, provided that not all such students 
attend the same school,
``(B) such organization does not provide 
scholarships for any expenses other than qualified 
elementary or secondary education expenses,
``(C) such organization provides a scholarship to 
eligible students with a priority for--
``(i) students awarded a scholarship the 
previous school year, and
``(ii) after application of clause (i), any 
such students who have a sibling who was 
awarded a scholarship from such organization,
``(D) such organization does not earmark or set 
aside contributions for scholarships on behalf of any 
particular student,
``(E) such organization takes appropriate steps to 
verify the annual household income and family size of 
eligible students to whom it awards scholarships, and 
limits them to a member of a household for which the 
income does not exceed the amount established under 
subsection (c)(1)(A),
``(F) such organization--
``(i) obtains from an independent certified 
public accountant annual financial and 
compliance audits, and
``(ii) certifies to the Secretary (at such 
time, and in such form and manner, as the 
Secretary may prescribe) that the audit 
described in clause (i) has been completed, and
``(G) no officer or board member of such 
organization has been convicted of a felony.
``(2) Income verification.--For purposes of paragraph 
(1)(E), review of all of the following (as applicable) shall be 
treated as satisfying the requirement to take appropriate steps 
to verify annual household income:
``(A) Federal and State income tax returns or tax 
return transcripts with applicable schedules for the 
taxable year prior to application.
``(B) Income reporting statements for tax purposes 
or wage and income transcripts from the Internal 
Revenue Service.
``(C) Notarized income verification letter from 
employers.
``(D) Unemployment or workers compensation 
statements.
``(E) Budget letters regarding public assistance 
payments and Supplemental Nutrition Assistance Program 
(SNAP) payments including a list of household members.
``(3) Independent certified public accountant.--For 
purposes of paragraph (1)(F), the term `independent certified 
public accountant' means, with respect to an organization, a 
certified public accountant who is not a person described in 
section 465(b)(3)(A) with respect to such organization or any 
employee of such organization.
``(4) Prohibition on self-dealing.--
``(A) In general.--A scholarship granting 
organization may not award a scholarship to any 
disqualified person.
``(B) Disqualified person.--For purposes of this 
paragraph, a disqualified person shall be determined 
pursuant to rules similar to the rules of section 4946.
``(e) Denial of Double Benefit.--Any qualified contribution for 
which a credit is allowed under this section shall not be taken into 
account as a charitable contribution for purposes of section 170.
``(f) Carryforward of Unused Credit.--
``(1) In general.--If the credit allowable under subsection 
(a) for any taxable year exceeds the limitation imposed by 
section 26(a) for such taxable year reduced by the sum of the 
credits allowable under this subpart (other than this section, 
section 23, and section 25D), such excess shall be carried to 
the succeeding taxable year and added to the credit allowable 
under subsection (a) for such taxable year.
``(2) Limitation.--No credit may be carried forward under 
this subsection to any taxable year following the fifth taxable 
year after the taxable year in which the credit arose. For 
purposes of the preceding sentence, credits shall be treated as 
used on a first-in first-out basis.''.
(2) Conforming amendments.--
(A) Section 25(e)(1)(C) of such Code is amended by 
striking ``and 25D'' and inserting ``25D, and 25F''.
(B) The table of sections for subpart A of part IV 
of subchapter A of chapter 1 of such Code is amended by 
inserting after the item relating to section 25E the 
following new item:

``Sec. 25F. Qualified elementary and secondary education 
scholarships.''.
(b) Credit for Corporations.--
(1) In general.--Subpart D of part IV of subchapter A of 
chapter 1 of the Internal Revenue Code of 1986 is amended by 
adding after section 45AA the following:

``SEC. 45BB. CONTRIBUTIONS TO SCHOLARSHIP GRANTING ORGANIZATIONS.

``(a) General Rule.--For purposes of section 38, in the case of a 
corporation, the education scholarship credit determined under this 
section for the taxable year is the aggregate amount of qualified 
contributions for the taxable year.
``(b) Amount of Credit.--The credit allowed under subsection (a) 
for any taxable year shall not exceed 5 percent of the taxable income 
(as defined in section 170(b)(2)(D)) of the corporation for such 
taxable year.
``(c) Qualified Contributions.--For purposes of this section, the 
term `qualified contribution' has the meaning given such term under 
section 25F.
``(d) Denial of Double Benefit.--No deduction shall be allowed 
under any provision of this chapter for any expense for which a credit 
is allowed under this section.
``(e) Application of Volume Cap.--A qualified contribution shall be 
taken into account under this section only if such contribution is not 
in excess of the volume cap established under section 3 of the 
Educational Choice for Children Act of 2025.''.
(2) Conforming amendments.--Section 38(b) of such Code is 
amended by striking ``plus'' at the end of paragraph (40), by 
striking the period and inserting ``, plus'' at the end of 
paragraph (41), and by adding at the end the following new 
paragraph:
``(42) the education scholarship credit determined under 
section 45BB(a).''.
(3) Clerical amendment.--The table of sections for subpart 
D of part IV of subchapter A of chapter 1 of such Code is 
amended by adding at the end the following new item:

``Sec. 45BB. Contributions to scholarship granting organizations.''.
(c) Failure of Scholarship Granting Organizations To Make 
Distributions.--
(1) In general.--Chapter 42 of such Code is amended by 
adding at the end the following new subchapter:

``Subchapter I--Scholarship Granting Organizations

``Sec. 4969. Failure to distribute receipts.

``SEC. 4969. FAILURE TO DISTRIBUTE RECEIPTS.

``(a) In General.--In the case of any scholarship granting 
organization (as defined in section 25F) which has been determined by 
the Secretary to have failed to satisfy the requirement under 
subsection (b) for any taxable year, any contribution made to such 
organization during the first taxable year beginning after the date of 
such determination shall not be treated as a qualified contribution (as 
defined in section 25F(c)(2)) for purposes of sections 25F and 45BB.
``(b) Requirement.--The requirement described in this subsection is 
that the amount of receipts of the scholarship granting organization 
for the taxable year which are distributed before the distribution 
deadline with respect to such receipts shall not be less than the 
required distribution amount with respect to such taxable year.
``(c) Definitions.--For purposes of this section--
``(1) Required distribution amount.--
``(A) In general.--The required distribution amount 
with respect to a taxable year is the amount equal to 
100 percent of the total receipts of the scholarship 
granting organization for such taxable year--
``(i) reduced by the sum of such receipts 
that are retained for reasonable administrative 
expenses for the taxable year or are carried to 
the succeeding taxable year under subparagraph 
(C), and
``(ii) increased by the amount of the 
carryover under subparagraph (C) from the 
preceding taxable year.
``(B) Safe harbor for reasonable administrative 
expenses.--For purposes of subparagraph (A)(i), if the 
percentage of total receipts of a scholarship granting 
organization for a taxable year which are used for 
administrative purposes is equal to or less than 10 
percent, such expenses shall be deemed to be reasonable 
for purposes of such subparagraph.
``(C) Carryover.--With respect to the amount of the 
total receipts of a scholarship granting organization 
with respect to any taxable year, an amount not greater 
than 15 percent of such amount may, at the election of 
such organization, be carried to the succeeding taxable 
year.
``(2) Distributions.--The term `distribution' includes 
amounts which are formally committed but not distributed. A 
formal commitment described in the preceding sentence may 
include contributions set aside for eligible students for more 
than one year.
``(3) Distribution deadline.--The distribution deadline 
with respect to receipts for a taxable year is the first day of 
the third taxable year following the taxable year in which such 
receipts are received by the scholarship granting 
organization.''.
(2) Clerical amendment.--The table of subchapters for 
chapter 42 of such Code is amended by adding at the end the 
following new item:

``subchapter i. scholarship granting organizations''.

(d) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after December 31, 2025.

SEC. 3. VOLUME CAP.

(a) In General.--For purposes of sections 25F(b)(2) and 45BB(e) of 
the Internal Revenue Code of 1986 (as added by this Act), the volume 
cap applicable under this section shall be $10,000,000,000 for calendar 
year 2026 and each subsequent year thereafter. Such amount shall be 
allocated by the Secretary as provided in subsection (b) to taxpayers 
with respect to qualified contributions made by such taxpayers, except 
that 10 percent of such amount shall be divided evenly among the 
States, and shall be available with respect to--
(1) individuals residing in such States to claim the credit 
allowed under section 25F of the Internal Revenue Code of 1986, 
and
(2) corporations created or organized in such State to 
claim the credit determined under section 45BB of such Code.
(b) First-Come, First-Serve.--For purposes of applying the volume 
cap under this section, such volume cap for any calendar year shall be 
allocated by the Secretary on a first-come, first-serve basis, as 
determined based on the time (during such calendar year) at which the 
taxpayer made the qualified contribution with respect to which the 
allocation is made. The Secretary shall not make any allocation of 
volume cap for any calendar year after December 31 of such calendar 
year.
(c) Real-Time Information.--For purposes of this section, the 
Secretary shall develop a system to track the amount of qualified 
contributions made during the calendar year for which a credit may be 
claimed under section 25F or 45BB of the Internal Revenue Code of 1986, 
with such information to be updated in real time.
(d) Annual Increases.--
(1) In general.--In the case of the calendar year after a 
high use calendar year, the dollar amount otherwise in effect 
under subsection (a) for such calendar year shall be equal to 
105 percent of the dollar amount in effect for such high use 
calendar year.
(2) High use calendar year.--For purposes of this 
subsection, the term ``high use calendar year'' means any 
calendar year for which 90 percent or more of the volume cap in 
effect for such calendar year under subsection (a) is allocated 
to taxpayers.
(3) Prevention of decreases in annual volume cap.--The 
volume cap in effect under subsection (a) for any calendar year 
shall not be less than the volume cap in effect under such 
subsection for the preceding calendar year.
(4) Publication of annual volume cap.--The Secretary shall 
make publicly available the dollar amount of the volume cap in 
effect under subsection (a) for each calendar year.
(e) States.--For purposes of this section, the term ``State'' 
includes the District of Columbia.

SEC. 4. EXEMPTION FROM GROSS INCOME FOR SCHOLARSHIPS FOR QUALIFIED 
ELEMENTARY OR SECONDARY EDUCATION EXPENSES OF ELIGIBLE 
STUDENTS.

(a) In General.--Part III of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 is amended by inserting before section 
140 the following new section:

``SEC. 139J. SCHOLARSHIPS FOR QUALIFIED ELEMENTARY OR SECONDARY 
EDUCATION EXPENSES OF ELIGIBLE STUDENTS.

``(a) In General.--In the case of an individual, gross income shall 
not include any amounts provided to any dependent of such individual 
pursuant to a scholarship for qualified elementary or secondary 
education expenses of an eligible student which is provided by a 
scholarship granting organization.
``(b) Definitions.--In this section, the terms `qualified 
elementary or secondary education expense', `eligible student', and 
`scholarship granting organization' have the same meaning given such 
terms under section 25F(c).''.
(b) Conforming Amendment.--The table of sections for part III of 
subchapter B of chapter 1 of the Internal Revenue Code of 1986 is 
amended by inserting before the item relating to section 140 the 
following new item:

``Sec. 139J. Scholarships for qualified elementary or secondary 
education expenses of eligible students.''.
(c) Effective Date.--The amendments made by this section shall 
apply to amounts received after December 31, 2025, in taxable years 
ending after such date.

SEC. 5. ORGANIZATIONAL AND PARENTAL AUTONOMY.

(a) Prohibition of Control Over Scholarship Organizations.--
(1) In general.--
(A) Treatment.--A scholarship granting organization 
shall not, by virtue of participation under any 
provision of this Act or any amendment made by this 
Act, be regarded as acting on behalf of any 
governmental entity.
(B) No governmental control.--Nothing in this Act, 
or any amendment made by this Act, shall be construed 
to permit, allow, encourage, or authorize any Federal, 
State, or local government entity, or officer or 
employee thereof, to mandate, direct, or control any 
aspect of any scholarship granting organization.
(C) Maximum freedom.--To the extent permissible by 
law, this Act, and any amendment made by this Act, 
shall be construed to allow scholarship granting 
organizations maximum freedom to provide for the needs 
of the participants without governmental control.
(2) Prohibition of control over non-public schools.--
(A) No governmental control.--Nothing in this Act, 
or any amendment made by this Act, shall be construed 
to permit, allow, encourage, or authorize any Federal, 
State, or local government entity, or officer or 
employee thereof, to mandate, direct, or control any 
aspect of any private or religious elementary or 
secondary education institution.
(B) No exclusion of private or religious schools.--
No Federal, State, or local government entity, or 
officer or employee thereof, shall impose or permit the 
imposition of any conditions or requirements that would 
exclude or operate to exclude educational expenses at 
private or religious elementary and secondary education 
institutions from being considered qualified elementary 
or secondary education expenses.
(C) No exclusion of qualified expenses due to 
institution's religious character or affiliation.--No 
Federal, State, or local government entity, or officer 
or employee thereof, shall exclude, discriminate 
against, or otherwise disadvantage any elementary or 
secondary education institution with respect to 
qualified elementary or secondary education expenses at 
that institution based in whole or in part on the 
institution's religious character or affiliation, 
including religiously based or mission-based policies 
or practices.
(3) Parental rights to use scholarships.--No Federal, 
State, or local government entity, or officer or employee 
thereof, shall disfavor or discourage the use of scholarships 
granted by participating scholarship granting organizations for 
qualified elementary or secondary education expenses at private 
or nonprofit elementary and secondary education institutions, 
including faith-based schools.
(4) Parental right to intervene.--In any action filed in 
any State or Federal court which challenges the 
constitutionality (under the constitution of such State or the 
Constitution of the United States) of any provision of this Act 
(or any amendment made by this Act), any parent of an eligible 
student who has received a scholarship from a scholarship 
granting organization shall have the right to intervene in 
support of the constitutionality of such provision or 
amendment. To avoid duplication of efforts and reduce the 
burdens placed on the parties to the action, the court in any 
such action may require interveners taking similar positions to 
file joint papers or to be represented by a single attorney at 
oral argument, provided that the court does not require such 
interveners to join any brief filed on behalf of any State 
which is a defendant in such action.
(b) Definitions.--For purposes of this section, the terms 
``eligible student'', ``scholarship granting organization'', and 
``qualified elementary or secondary education expense'' shall have the 
same meanings given such terms under section 25F(c) of the Internal 
Revenue Code of 1986 (as added by section 2(a) of this Act).
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