H.R. 817 — Educational Choice for Children Act of 2025

This section establishes a new nonrefundable tax credit under new IRC §25F for individuals equal to qualified contributions (i.e., cash or marketable securities donated to a scholarship granting organization (SGO)) during the taxable year, limited to the greater of 10% of adjusted gross income or $5,000, a volume cap allocated by Treasury, and reduced by any state tax credits claimed for the same contributions. Eligible students are those from households with income not exceeding 300% of area median gross income (as defined in IRC §42 for low-income housing tax credits) who are eligible to attend public elementary or secondary school. Qualified elementary or secondary education expenses eligible for SGO scholarships include (1) tuition; (2) curriculum, books, and instructional materials (including online); (3) tutoring or classes by qualified instructors; (4) fees for standardized tests, AP exams, college admission exams, or dual enrollment; and (5) therapies for students with disabilities (e.g., occupational, speech-language), all in connection with public, private, religious schools, or homeschool. An SGO must be a 501(c)(3) organization (not a private foundation) whose primary activity is awarding scholarships for such expenses to eligible students, maintaining separate accounts for contributions, and either meeting specified requirements or having prior state-law eligibility for tax-creditable contributions. Those requirements include (1) awarding scholarships to at least two students not all at the same school; (2) covering only qualified expenses; (3) prioritizing prior recipients and their siblings; (4) prohibiting earmarking for specific students; (5) verifying household income (e.g., via tax returns); (6) obtaining annual audits by a certified public accountant and certifying them to Treasury; and (7) ensuring no officer or board member has a felony conviction.

This section establishes a new exclusion from gross income (IRC §139J) for scholarship amounts provided by a scholarship granting organization to an eligible student who is the taxpayer's dependent, if used for qualified elementary or secondary education expenses (with terms defined under IRC §25F(c), i.e., tuition, fees, books, and materials at eligible K-12 schools). The exclusion applies to amounts received after December 31, 2024, in taxable years ending after such date.

This section prohibits Federal, State, or local governments from mandating, directing, or controlling scholarship granting organizations (SGOs) or private/religious elementary or secondary schools participating under the Act and requires maximum freedom for SGOs to operate. It further prohibits such governments from excluding qualified elementary or secondary education expenses at private/religious schools, discriminating against such schools based on religious character or affiliation, or disfavoring parental use of SGO scholarships at private/nonprofit/faith-based schools. Finally, it grants parents of eligible students receiving SGO scholarships the right to intervene in state or federal court actions challenging the Act's constitutionality and cross-references definitions of eligible student, SGO, and qualified elementary or secondary education expense to new IRC §25F(c).