A family in Buffalo paying for a reading tutor, a parent in the Bronx weighing a parochial school, and a Southern Tier district that charges for field trips share a stake in one decision in Albany. On Thursday (Oct 1), the U.S. Treasury Department and the IRS released the long-awaited rules for the federal Education Freedom Tax Credit, the scholarship program Congress created in the 2025 budget law. The rules appeared in the Federal Register on Friday. New York families can only use it if Gov. Kathy Hochul opts the state in, and she has until midnight on January 1 to decide.

The governor "declined Thursday to make it official," though she has said for months that she plans to take part unless the program contains what her office calls a poison pill. Her spokesperson, Jonah Allon, told Chalkbeat that she wants to be sure the program can be carried out in a way that benefits all students and leaves state and local budgets untouched.

The program works through private donations rather than state spending. A taxpayer who gives to a qualifying nonprofit, known as a scholarship-granting organization, gets a dollar-for-dollar federal credit of up to $1,700. The proposed rules let a married couple filing jointly claim up to $3,400 when each spouse has given the full amount. Those nonprofits then hand out scholarships to students in states that have opted in.

Under the statute, a child can qualify if the household earns no more than 300 percent of area median income, a ceiling that Chalkbeat calculates covers 92 percent of all school-aged children nationally. The proposed rules also require that a scholarship recipient be eligible to enroll in a public elementary or secondary school. A Treasury official told The 74 that families already enrolled in a qualifying government assistance program can prove eligibility that way. "Simply showing that you qualify for that government assistance program is sufficient, and no additional paperwork is necessary."

What the money can buy matters to far more New York families than the private school debate suggests. Scholarships cover the same expenses as a Coverdell education savings account, which includes tuition, tutoring, special needs services, books and computers. The 74 reports that students who stay in public school can use them for academic help such as tutoring and for fees districts already charge, including field trips and afterschool programs. A family with a child in a public school in Rochester or Rockland County could, in principle, draw on the same pool of money as a family paying private school tuition.

The proposed regulations also include the very provision driving the debate in Albany: states are explicitly forbidden from narrowing federal criteria for SGOs or setting stricter local standards. While scholarship organizations must submit annual third-party audits to the state, regulators are limited to reviewing those reports—they have no power to alter the underlying rules.

New York State United Teachers says that provision settles the question. "Today's proposed regulations confirm exactly what we have warned from the beginning: New York must reject this federal voucher scheme," NYSUT President Melinda Person said in a statement on October 1. "If New York opts in, the state would be prohibited from setting standards for scholarship organizations, deciding which organizations can participate, or limiting the types of schools and expenses that receive these federal tax dollars," she said. Her statement continued: "New York puts its name on the program, but Washington writes the rules."

Supporters in New York read the same program as a benefit that costs the state nothing. Sydney Altfield, chief executive of the Teach Coalition, told Spectrum News' Capital Tonight in late September that "no child should be left behind and that means public school students, that means non-public school students, and this is an opportunity to help the entire ecosystem." In that same report, Allon said that "Governor Hochul's priority is making sure every student receives an education that best meets their needs, which is why she wants the federal scholarship tax credit to benefit all New York students."

Hochul's opening position dates to May 8, when her office signaled support. "Governor Hochul is supportive of the federal tax credit scholarship and its potential to help New York students and schools," spokesperson Emma Wallner told Chalkbeat New York at the time. She added that the office would "thoroughly review the details of the policy for poison pills that could harm New York's education system." In the same report, State Sen. John Liu warned that "there will undoubtedly be long-term damage to the ability of states to provide public education." As our September analysis of the opt-in decision explained, the choice belongs to the governor alone and needs no vote in the Legislature.

New York's own constitution shapes how the program would reach religious schools. Article XI, Section 3 of the state constitution, often called the Blaine Amendment, bars the state from using "any public money" in aid of a school under the control of a religious denomination. Because the federal credit runs on private gifts and a federal tax break, state money never moves, which is why the decision rests with the governor rather than with the courts.

The IRS lists 30 states that have committed to participate, including Ohio, New Hampshire and Virginia. Colorado's Jared Polis is among the Democrats who chose to opt in, while legislatures in Kentucky, Kansas and North Carolina joined by overriding vetoes from Democratic governors. Oregon Gov. Tina Kotek has declined, and Chalkbeat counts 18 Democratic governors besides Hochul who have yet to decide.

That count gives the pressure campaign its argument. "The governors who move now get to shape this program for their state's students," Jorge Elorza, chief executive of Democrats for Education Reform, told The 74. "The ones who wait will watch their residents' tax dollars pay for scholarships in other states." His argument rests on the credit following the taxpayer rather than the state. New York donors could still give to scholarship groups in participating states such as Ohio, while New York children would receive nothing unless Albany opts in.

Not every family is covered even in participating states. Colleen Hroncich of the Cato Institute told The 74 that Treasury "chose a narrow definition of 'school' that will exclude homeschoolers and some microschoolers in many states." That detail matters in New York, where families already navigate separate rules for homeschool and nonpublic students seeking state aid.

The calendar now runs on three dates. Written comments on the proposed rules are due December 1, and the IRS will hold a public hearing on December 15 at 10 a.m. Eastern. A state that wants in for 2027 must file its election on or before January 1, 2027, and then submit its list of approved scholarship organizations by February 15.

For New York parents, that leaves about 13 weeks before the opt-in deadline, with the hearing in Washington landing just over two weeks before it. The proposed rules allow for changes after comments come in, and a Treasury official named Kevin Salinger told The 74 that "the guidance process is not complete." Hochul, who began the year leaning toward yes, has not said which way she will go.