Did North Carolina make another first? Yesterday, the state House passed House Bill (HB) 87, an act to allow the state to participate formally in the federal tax credit scholarship as laid out in the One Big Beautiful Bill Act. The Senate approved the legislation on Tuesday. The bill now goes to Gov. Stein, who is expected to veto the bill. Do Republicans have the votes to override an expected veto? Two Democrats (Carla Cunningham and Shelly Willingham) joined all House Republicans in passing HB 87 on Wednesday. If all Republicans vote for the measure — which they did — only one Democrat is needed to override the governor’s veto.
A quick review of Google and AI search engines reveals that no other state has formally opted in to the new federal tax credit scholarship. That makes North Carolina the first state to do so. The new legislation allows individuals who contribute up to $1,700 dollars to certain approved scholarship organizations that distribute scholarships to eligible children to claim a dollar-for-dollar tax credit on their federal taxes. There is no cap on the total amount of donations made to approved scholarship organizations and the program requires states to opt in each year. The contributions to the approved organizations would then be used as scholarships and distributed to eligible K–12 students. The program starts on Jan. 2, 2027.
To qualify for a scholarship, students must meet two conditions. First, they must come from households that earn 300 percent or less of their county’s median income. Second, they must be eligible to attend a public school. Students who receive the scholarship can use it for tuition, fees, tutoring, books, transportation, computers, or room and board.
While school choice advocates should be excited at the possibilities, the opportunities come with plenty of unknowns and a compelling case for caution. Let’s explain.
What happened to federalism? This is federal tax law, not education law. The U.S. Department of the Treasury — not an education entity — will be issuing regulations impacting families, schools, and public education. For the longest time, conservatives have been asking the federal government to stay out of education. Do we suddenly trust Washington and the bureaucracy? Will the IRS seek to exert more authority over private education?
Will religious freedom be protected? An overwhelming number of students use the Opportunity Scholarship to attend private religious schools. Religious leaders expressed disappointment over the removal of strong language protecting religious liberties in the federal bill’s final version.
How will the annual opt-in requirement work? Legislation is not clear about how the “opt in” requirement is to work. It is an annual requirement. In addition, how the process works is vague. Who has authority to make the decision is unclear. The legislation says, “shall be made by the Governor of the State or by such individual, agency, or entity as is designated under State law to make such elections on behalf of the state with respect to Federal Tax Benefits.” Does that mean the legislature could appoint someone different? If opting in is an annual requirement, does that mean participation in the program will stop and start based on legislative leadership and political winds?
Will tax credit really supercharge parental choice? The cap on the tax credit ($1,700) will require schools to draw on a larger pool of donors to fund scholarships sufficiently. Will the legislation be enough to turbocharge school choice programs or just require more work?
How will the tax credit work with existing state private school choice programs? Will a student be eligible for an Opportunity Scholarship and another scholarship funded through donations and tax credits? Will the accountability requirements be the same or different?
These are only a few of the many questions the legislation raises. It’s clear parents want more options. And yes, the federal tax credit can greatly expand school choice and equip parents with the ability to choose the best educational option for their children. However, will parents, policymakers, and school leaders need to cede authority and autonomy in exchange for the opportunity to expand school choice programs? That’s the question that needs to be answered.
