The "Universal School Choice Act" introduces new federal tax credits for individuals and corporations making charitable contributions to scholarship granting organizations. These credits, designated as Section 25F for individuals and Section 45BB for corporations, aim to fund scholarships for qualified elementary and secondary education expenses. The bill is set to apply to taxable years ending after December 31, 2025.

For individuals, the credit is capped at the greater of $5,000 or 10 percent of their adjusted gross income, and it is reduced by any similar state tax credits received. Corporations can claim a credit up to 5 percent of their taxable income. Qualified elementary or secondary education expenses are broadly defined to include tuition, fees, curricula, instructional materials, online educational resources, tutoring, standardized test fees, dual enrollment fees, educational therapies for students with disabilities, and transportation costs. Importantly, these expenses can apply to public, private, or religious schools, and also cover homeschooling-related costs, but exclude services provided by family members.

Scholarship granting organizations (SGOs) must be 501(c)(3) non-private foundations whose primary activity is providing these scholarships. They are required to maintain separate accounts for qualified contributions, provide scholarships to multiple students (not all attending the same school), and prioritize students from households with incomes below 500 percent of the poverty line, after prioritizing returning students and their siblings. SGOs must also undergo annual independent financial audits, avoid earmarking contributions for specific students, and prohibit self-dealing. Organizations that fail to distribute 100% of their receipts (minus a 10% administrative safe harbor) by a specified deadline will have future contributions deemed ineligible for the tax credit.

A national volume cap for these credits is set at $10 billion annually, starting in calendar year 2026, and is allocated among states based on student population, with a significant weighting towards low-income students. Unclaimed credits can be reallocated, and the cap can increase in subsequent years if fully utilized. Additionally, the bill ensures that scholarships received by eligible students for qualified education expenses are exempt from gross income, preventing them from being taxed as income.

The legislation includes strong provisions to protect organizational and parental autonomy, explicitly stating that participation does not imply governmental control over SGOs or private/religious elementary and secondary education institutions. It prohibits federal, state, or local entities from mandating, directing, or controlling any aspect of these organizations or schools, or from discriminating against religious institutions. Parents of eligible students are also granted the right to intervene in any legal challenges to the bill's constitutionality, reinforcing their role in educational decisions.