Nevada Joins Federal School Choice Tax Credit as New IRS Rules Spell Out How Scholarship Donations Will Work

What happened

The federal government has released more guidance on a new school choice scholarship program created under President Donald Trump's administration, and Nevada is taking part. The Nevada Independent reported the details in its Spanish-language edition, translated from its Indy Education newsletter.

The basic idea is simple: people donate to a scholarship fund and receive a federal tax credit in return. According to the IRS, Nevada was one of 29 states that had signed up for the program as of Sept. 14.

How the tax credit works

Credit amounts and timing

Starting Jan. 1, the IRS will offer a dollar-for-dollar tax credit of up to $1,750 for individuals and up to $3,400 for couples filing jointly. The credit applies to donations that support scholarships students can use for certain educational expenses, and it is claimed on federal tax returns.

There is no national limit on total contributions, The Nevada Independent reported. The Treasury Department estimates that most students in participating states will meet the eligibility requirements.

New temporary and proposed rules

The Treasury Department and the IRS issued temporary regulations and proposed rules for the program, which the administration calls the Education Freedom Tax Credit. Those rules will be the subject of a public hearing on Dec. 15.

One temporary rule says state participation is voluntary and must be renewed every year, so opting in once does not lock a state into the program for future years. Another allows scholarship-granting organizations, known as SGOs, to operate in several participating states at the same time.

Limits on what states can require

Under the temporary rules, states cannot add their own requirements for SGOs. That means a state cannot tell these groups what kinds of schools scholarship recipients must attend or which educational expenses the scholarships must cover.

Supporters and critics weigh in

Supporters see room to combine programs

Valeria Gurr, a senior researcher at the American Federation for Children, a national group that promotes school choice, told the Independent she expects students who qualify for both the federal scholarships and Nevada's similar state program, Opportunity Scholarships, will be able to combine them. Families following Nevada school news may want to watch how that plays out.

Ashling Preston, the group's director of federal affairs, said she believes SGOs will propose strong ways to prevent wasteful spending. She added that the federal government would hold the organizations accountable if they allow abuse, according to the Independent.

Critics point to Arizona

Educate Nevada Now, a nonprofit that filed a lawsuit to stop a proposed private school voucher system in Nevada, has said the federal program will not be good for the state. Executive Director Amanda Morgan said the recent guidance confirmed many of the group's concerns.

Morgan noted that the proposed rules would let SGOs use outside vendors, known as digital wallets, to check whether families spend scholarship money on allowed expenses. She said this mirrors Arizona's voucher system, which also relies on digital wallets. A recent audit there found recipients had been allowed to pay for non-educational costs such as theme park tickets, airfare, hotel stays and meals, the Independent reported.

What to watch next

• A public hearing on the temporary and proposed Treasury and IRS rules is scheduled for Dec. 15.
• The IRS tax credit for scholarship donations begins Jan. 1.
• State participation must be renewed each year, so Nevada will have to opt in again for future years.
• How SGOs will verify spending, including whether they use digital wallet vendors under the proposed rules.