H.R. 3519 — Universal School Choice Act

This section establishes a nonrefundable tax credit under new IRC section 25F for U.S. citizens and residents equal to qualified contributions (cash or marketable securities) to scholarship granting organizations (SGOs), limited to the greater of 10% of adjusted gross income or $5,000 per taxable year. The credit is further limited by (1) an annual volume cap tied to designations under the Universal School Choice Act or a general pool thereunder and (2) reduction by any state tax credits claimed for the same contributions. Qualified elementary and secondary education expenses eligible for SGO scholarships—which support eligible students (i.e., those eligible for public K-12 schools) attending public, private (including religious), or homeschools—include (1) tuition and fees; (2) curricula, books, and instructional materials; (3) online materials and required technology; (4) tutoring by licensed teachers, those with K-12 or higher education teaching experience (as defined in 20 U.S.C. 1001(a)), or subject experts (excluding family); (5) standardized tests, AP exams, or college admissions exams; (6) dual enrollment fees; (7) disability therapies; and (8) related transportation. (Thus, the credit incentivizes donations to SGOs—exempt 501(c)(3) organizations (not private foundations) devoting substantially all activities to such scholarships, maintaining separate contribution accounts, and meeting additional requirements—for expenses across states, territories, D.C., and Bureau of Indian Education schools.)

This section establishes a $10 billion national volume cap on tax credits under new IRC §§25F (individual credit for qualified contributions) and 45BB (business credit for qualified contributions) for calendar year 2026 and subsequent years. For each year, the Secretary of the Treasury allocates the cap to states by (1) reserving, subject to an initial-year exception, amounts equal to qualifying contributions designated for each state in the preceding year; (2) allocating the remainder based on state shares of the population aged 5 through 17 (20% of remainder) and that population below the poverty line (80% of remainder), as determined using recent data from the Secretary of Education; and (3) guaranteeing each state at least 0.5% of the cap. The section further requires taxpayers to designate a "distribution state" (i.e., the state where scholarship granting organizations must distribute funds to eligible students under new IRC §4969) for their contributions via a real-time Treasury tracking system, with designations binding on organizations except for administrative expenses; directs initial state allocations by November 1 of the prior year; and provides for reallocation of unclaimed amounts after July 31 on a first-come, first-served basis. Additionally, this section provides for annual cap increases to 105% of the prior year's level following any "high use" year (i.e., when 90% or more of the cap is allocated), prohibits year-over-year decreases, and requires public notice of each year's cap amount.

This section establishes a new exclusion from gross income under new IRC §139J for amounts provided by a scholarship granting organization as a scholarship for qualified elementary or secondary education expenses of an eligible student, if provided to an individual's dependent. Terms such as qualified elementary or secondary education expense, eligible student, and scholarship granting organization have the same meanings as under IRC §25F(c) (which defines them for the related scholarship tax credit). The exclusion applies to amounts received after December 31, 2025, in taxable years ending after such date.

This section prohibits Federal, State, or local governments or their officers or employees from mandating, directing, or controlling (1) scholarship granting organizations participating under the Act; or (2) private or religious elementary or secondary schools, including by excluding or discriminating against their qualified education expenses based on religious character or affiliation. It further (3) bars such governments from disfavoring or discouraging parental use of scholarships at private, nonprofit, or faith-based schools; and (4) grants parents of eligible students who received scholarships the right to intervene in state or federal court challenges to the Act's constitutionality (with courts permitted to consolidate similar interveners to reduce burdens). (As background, scholarship granting organizations are entities eligible for contributions qualifying for a new federal tax credit under IRC §25F that award scholarships to eligible students for qualified elementary or secondary education expenses, such as tuition at eligible public, private, or religious schools.)