Federal tax credit expected to help with school choice

By RENEE WEBB
Content and Design Coordinator

The nation’s first ever federal K-12 scholarship tax credit program was recently signed into law.

This historic legislation was part of One Big Beautiful Bill Act that was passed by the 119^th Congress and signed into law on July 4 by President Donald Trump.

According to Trish Wilger, executive director of Iowa ACE, this new federal initiative is designed to provide federal income tax credit for individual donors supporting scholarships for K-12 students.

“I’m excited about the new program, especially since it will offer school choice opportunities to families in states with no school choice programs in place,” she said.

Patty Lansink, superintendent of Catholic schools in the Diocese of Sioux City, expressed support for any form of school choice for parents.

Lansink“It is a 100% federal tax credit for individual taxpayers – not corporations – with a $1,700 cap per taxpayer,” explained the superintendent. “So, if someone donates $1,000, they get a $1,000 credit on their federal taxes.”

Tom Chapman, executive director of the Iowa Catholic Conference, also was pleased that Congress enacted a program that all states could access to help parents pay tuition at a Catholic school or other educational option.

These three officials were all quick to point out that the new program will not take effect until 2027, so it will take some time for federal rules to be created and all specifics of the program to be unveiled.

“There will be a rule-making process by the Department of Treasury that may take several months or a year and it may change some of the details of the program,” said Wilger.

Lansink explained that states will have to opt-in to participate, so it will fall to the state leadership to decide if the state participates or not.

“It could benefit families if Iowa chooses to participate in this program,” she added.

Wilger said they have been informed that these funds – the scholarships – would be for students whose families are at or below three times the median income for the area.

“The Iowa median income is $99,800, so most Iowa families will quality for scholarships,” she said.

With the program starting Jan. 1, 2027, the Iowa ACE director estimated that Iowa taxpayers will be able to make their donations and receive their tax credit for tax year 2027 and beyond. 

While it’s possible that scholarships may be available the fall semester of 2027, she said most likely it will be in 2028.

In Iowa, the Educational Opportunities Act was enacted in 2006 to allow nonpublic schools to establish student tuition organizations (STOs). Donors to the program receive a state tax credit – initially 65% and now 75% - if they have an Iowa tax liability.

Currently, there are 12 Iowa STOs including the Msgr. Lafferty Tuition Foundation in the Diocese of Sioux City.

Wilger“The existing STOs are still much needed. They fill a gap when education savings account funds don’t cover all educational costs and provide funds to eligible families who miss the ESA deadline, such as when a family moves in from out of state or needs to leave public school on short notice,” explained Wilger. “STOs serve the families with the greatest need.”

The new federal program, added Lansink, has no effect on the state programs already in place. The Iowa STO program will remain in place as long as state legislators allow it to.

While the STO program was initiated in the state nearly 20 years ago, it was in the 2023-24 school year when state education funding was available for Iowa students attending accredited private schools. The state’s Students First Act allowed use of education savings accounts (ESAs) that have been phased in over three years.

“Sometimes Iowans ask why other scholarship programs are needed since the passage ofChapman education savings accounts,” noted Chapman. “It’s because if you have one or more children in school, particularly in high school, ESAs may not cover the total cost of education. The new federal scholarships could be helpful for many in addition to the current STO program.”

The federal tax credit funding, noted Wilger, may be stacked on top of state STO and ESA funds to cover additional costs families incur.

Iowa ACE with the leaders of the state’s STOs and Homeschool Iowa have initiated discussions about establishing a new collaborative entity dedicated to facilitating the federal tax credit program in Iowa.