The public docket for Treasury's scholarship tax credit rules held 21,614 comments by Tuesday. On some days this month it grew by several thousand at a time, as identical letters arrived under individual names from several states. According to a running count by the explainer site EFTC Credit, one of the most repeated texts asks Treasury to withdraw the proposal outright. Its objection is that the rules would stop states from placing tighter limits on scholarship organizations, including limits on the kinds of schools students may attend.

That provision is the one New York will operate under if it joins. On Oct. 9, Gov. Kathy Hochul said the state would participate "if, and only if, all schools and students, including those in our public schools, could benefit." Our earlier report on Hochul's opt-in statement traced that condition through the federal paperwork. The regulation she reviewed before saying yes forbids any participating state from writing a condition like hers into the rules that scholarship groups must follow.

Written comments on the proposed rule, REG-117199-25, are due Tuesday, Dec. 1, along with requests to speak at a public hearing set for Tuesday, Dec. 15, at 10 a.m. Eastern. New York was not on the IRS list of participating states as of Oct. 22. It has until Jan. 1, 2027, to file an advance election and until Feb. 15 to submit the scholarship organizations it has certified. Districts, scholarship groups and parents who want a different final rule have five weeks to say so on the record.

Two documents, one calendar

Treasury and the IRS published two companion documents in the Federal Register on Oct. 2. The 51-page proposed rule covers how the credit is calculated, how scholarship granting organizations must operate and how they verify a family's income. The temporary regulations, Treasury Decision 10057, already govern the pieces that cannot wait, among them state elections, state lists of approved organizations, IRS registration and donor receipts.

The temporary rules apply as of Sept. 1, take formal effect 60 days after publication and expire on Oct. 1, 2029. Their text matches the corresponding sections of the proposal word for word, so a comment filed this fall reaches both documents. Any change it wins, though, will appear only in final regulations, and Treasury has set no date for those. Treasury wrote that it skipped advance comment on the temporary rules because waiting would leave no time to build the state and organization portals before contributions open on Jan. 1.

What the rules leave to the state, and what they take away

A participating state carries real administrative work. It must hold every scholarship group to the charity laws that govern any nonprofit doing business and soliciting donations within its borders. It must also impose application, documentation and financial reporting requirements tailored to catching fraud, such as two awards paying the same tuition bill. Each year it must certify that it reviewed every listed group's annual financial and programmatic audit. Its removal procedures must afford due process, and any public list it posts must match the one it filed with the IRS, link included.

The limits are just as specific. A state may not require scholarship groups to operate more restrictively than federal law does. The temporary rule names the two most obvious examples, limiting the type of school recipients attend and limiting the expenses scholarships can cover. The state must also certify that its list includes every qualifying organization located in the state that asked to be on it, which leaves no room to pick favorites. Federal officials keep the power to review each state's procedures and order changes if they find a pattern of irregularities.

An organization counts as located in New York if it is authorized to do business here and complies with state charity requirements. National scholarship groups can therefore sit on the state's list beside local ones. Treasury's preamble records the split among earlier commenters, one side noting that the phrase appears in more than 90 sections of the U.S. Code and never means merely authorized to operate. Treasury sided with the broader reading anyway, citing the law's purpose of widening access to scholarship money.

Treasury's paperwork estimate assumes 600 to 700 scholarship organizations nationwide, roughly 13 per state, along with 11 million individual donors. It budgets 10 hours of state review for each organization a state certifies. The governor may authorize up to two officials to file through the IRS state portal under a special-purpose employer number. Each must be an elected official, the state's director of taxation or an appointed official, and Hochul's statement did not say which office will run New York's review.

Her statement leaned on a different mechanism. "After a careful review of the federal regulations, we believe this program has the potential to bring millions of additional dollars to New York students and families without taking a single dollar from public schools or our state or local budgets," Hochul said. She continued: "I'm not going to leave money on the table when it could help our kids. That's why I have also been directly engaging with business leaders, who have committed to use this program to support public school students and their academic needs." The statement named no company and no dollar figure.

Where public school students fit

Every scholarship recipient must be eligible to enroll in a public elementary or secondary school. The money can pay only for expenses described in the Coverdell education savings account section of the tax code. That definition reaches tuition and fees, academic tutoring, special needs services, books, supplies, uniforms, transportation, extended-day programs and computer technology. Treasury acknowledged repeated requests for clarity on which expenses qualify and promised separate guidance under the Coverdell section. It called that guidance a high priority and has not yet issued it.

The most direct route to public school children runs through a safe harbor for individual tutoring and special needs services. A scholarship group can skip household income checks if the school sits in a federally designated qualified census tract, or certifies that at least 80 percent of its students live in one. The school itself must select the students based on academic or special need. In exchange, the group must send the state an annual third-party audit confirming that providers were qualified and that a professional unconnected to the provider diagnosed each student's need. The audit must also confirm that services ran long and often enough to help, and that their effect on each child was assessed.

For high-poverty buildings from the Bronx to Buffalo, that safe harbor is where Hochul's condition would have to become real. It asks principals to select recipients, independent evaluators to diagnose them and auditors to sign off, a chain that district business offices are well placed to price out in a comment. Treasury also loosened one statutory rule for these awards. The usual priority for returning recipients and their siblings can yield to need when the scholarship pays for tutoring or special services.

The income line, and why lunch status won't prove it

Eligibility stops at households earning more than 300 percent of area median gross income, measured under the Section 8 housing rules and adjusted for family size. Noncash items such as imputed returns on home equity are left out. Treasury estimated that about 95 percent of American children fall below the line, and the IRS plans to publish the limits each year by area and household size. In a state where incomes stretch from the North Country to Westchester, those tables will decide how far up the scale scholarships reach in each county.

Scholarship groups can verify income from pay stubs, tax returns or W-2 forms. They can also use a shortcut called categorical eligibility. It accepts an award letter from the past year showing that someone in the household receives SNAP, TANF, WIC, Section 8 housing assistance or Supplemental Security Income. Schoolwide free lunch status does not count, because the statute requires a household determination. New York has served free meals to every public school student since the 2025-26 school year, so lunch status already sorts no one here. Treasury asked which state programs should join the shortcut list, and Medicaid is not on it.

Foster children qualify without any income check. Recipients must live in the state whose list the organization appears on, with exceptions for children of service members and families on Indian lands. A New York child attending school across the border in New Jersey can still receive New York scholarship money. A New Jersey or Connecticut child enrolled at a school in New York cannot, at least for now, since neither state appeared on the IRS list as of Oct. 22.

What the rules ask of scholarship groups

A scholarship group must be a 501(c)(3) public charity that keeps credit-eligible donations in a segregated account. It must award scholarships to at least 10 students who do not all attend the same school. It must also spend at least 90 percent of its income on scholarships by the end of the year after the money arrives. A group whose activities are at least 85 percent scholarship work can apply that spending test to its segregated account alone. Treasury asked whether that share should be measured by receipts, expenditures, staff time or some other yardstick.

The conflict rules reach further than many community organizers may expect. Officers, directors and anyone on a selection committee are barred from receiving awards, and so are their relatives. The bar also covers donors who gave more than $5,000 in a year when that sum exceeds 2 percent of the year's contributions. Treasury rejected requests to exempt blind or anonymized selection, reasoning that the law's own priority for returning recipients and siblings makes truly blind selection impossible.

Every group must register in an IRS portal before it can issue the donor numbers taxpayers will enter on Form 8525. It must send donors receipts by Jan. 31 and report each donor's total to the IRS by Feb. 28. It must also commission an annual audit, which groups with $500,000 or less in receipts may assign to a committee of independent people unrelated to their management. New York offers no state tax credit for scholarship donations, so the pages Treasury spent on stacking state and federal credits will not touch donors here.

How to comment or ask to speak

Comments go through the federal portal at regulations.gov, under docket IRS-2026-1354, citing IRS and REG-117199-25. The web form caps typed text at 5,000 characters but accepts attached files. Every submission is published, and the notice warns that comments cannot be edited or withdrawn once filed. Paper comments go to CC:PA:01:PR (REG-117199-25), Room 5503, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.

Anyone who wants to testify must send a request to speak and an outline of topics by Dec. 1, and the notice says the hearing will be cancelled if no outlines arrive. Requests to attend without speaking are due by 5 p.m. Eastern on Thursday, Dec. 10. The IRS Publications and Regulations Section handles hearing logistics at [email protected], the contact the notice lists as preferred, or at (202) 317-6901. EFTC Credit, reading the notice's hearing section, reports that speakers get 10 minutes each and may appear in the IRS auditorium in Washington or by phone.

A rulemaking docket is not a ballot box. Treasury must respond to the substance of significant comments before it finalizes the rule, so a documented answer to a question Treasury actually asked outweighs another copy of a form letter. The preamble asks about the 85 percent test and the definition of a qualified digital wallet. It asks whether more safe harbors for verifying expenses are needed and how charity law interacts with the credit. It also asks which state or tribal benefit programs should prove income, and whether any certification required of states is disproportionately burdensome.

The New York calendar

Hochul faces voters on Tuesday, Nov. 3, four weeks before the comment deadline, and the temporary rules make every election good for one calendar year only. For 2027, New York must file Form 15714 by Friday, Jan. 1, the same day donations begin. It must then perfect that election by submitting its certified list by Monday, Feb. 15. If the list does not arrive, no organization in the state qualifies for the year, as our report on Treasury's rules and the January deadline laid out when the package was released.

From 2028 on, states file advance elections between Jan. 2 and Sept. 30 and perfect them between Oct. 1 and 11:59 p.m. on Jan. 1. Treasury chose that cutoff so a newly inaugurated governor could still act on inauguration day. Once a state perfects its election, Treasury reads the statute as allowing no revocation for that year. A state that files an advance election and never submits a list has, in effect, opted out.

Families cannot apply for anything yet, because applications run through scholarship organizations that New York has not certified and the IRS has not listed. The next date that matters to them is Dec. 1, when the docket closes. The one after that is Feb. 15, when the state either delivers its list or forfeits 2027.