Nebraska becomes the first state to adopt new federal school choice tax credit

Nebraska became the first state this week to opt into a federal tax credit for donations to private school scholarship funds serving low-income children.

A provision of the omnibus spending bill that President Trump signed in July will allow individuals to deduct up to $1,700 per year in donations to state-approved nonprofits from their income tax returns starting in 2027 — but only in states that formally adopt the program.

Qualifying students can use the scholarships to cover tuition, books and tutoring at any K-12 campuses they attend.

“This program is a game-changer for Nebraska students and their families, generating funds that will help send students to the school of their choice,” Gov. Jim Pillen, a Republican, said Monday as he signed an executive order adopting the credit. “When it comes to educating our kids, we need to ensure that every student is in an environment that allows them to succeed.”

Under the Federal Tax Credit Scholarship Program, families earning less than three times the median income in their area can receive money. The U.S. Census Bureau calculated that the median income in Nebraska was $76,000 in 2024.

Rep. Adrian Smith, a Nebraska Republican who co-sponsored the tax credit provision in the legislation, estimated that up to 90% of K-12 students in the state will qualify for funds.

“Nebraska families can benefit from potentially billions of donated dollars leveraged by this program,” Mr. Smith said in a statement.

According to Private School Review, the average tuition in Nebraska public schools is $8,070 in the 2025-26 academic year. That includes $10,850 for the average private high school.

Officials at the American Federation for Children, a school-choice advocacy group, welcomed the governor’s move to help defray those costs.

“We applaud all the bold champions in the legislature, Governor Pillen, and most of all, every Nebraska mom and dad who stood up for something better for their kids,” said Tommy Schultz, the federation’s CEO.

Twenty-one states, including Pennsylvania, Florida and Arizona, allow similar deductions on state tax returns.

It remains unclear how many states will adopt the federal program, which is the first of its kind.

The National Education Association and the American Federation of Teachers, the nation’s two largest teachers’ unions, have campaigned against it as a scheme to weaken taxpayer support for public schools.

On the other side of the issue, the U.S. Catholic bishops, the California Policy Center and the Association of Christian Schools International were among 175 groups that lobbied federal lawmakers to include the tax credit in the so-called One Big Beautiful Bill Act this summer.

The Trump administration has emphasized that the provision does not touch federal education funds.

The $1,700 donation limit in the law substantially weakens an earlier House version of the legislation that would have allowed individuals to deduct up to 10% of their adjusted gross income, or millions of dollars for wealthier donors, without requiring state approval.

The final version of the law added the opt-in requirement for states. It also eliminated a provision that would have allowed corporations to deduct up to 5% of taxable income as donations.

Private scholarship officials estimated that the original House bill would have funneled $10 billion a year to 2 million students annually.

The Congressional Budget Office projects that $4 billion in tax credits will be claimed annually under the final version of the law.

According to Private School Review, the average U.S. private school charged $14,903 a year in tuition in 2025, including $13,931 for grade schools and $17,811 for high schools. State averages ranged from $6,477 in South Dakota to $28,353 in Connecticut.

The Catholic Church, which operates the largest network of K-12 private schools with nearly 6,000 campuses nationwide, criticized the final version of the Big Beautiful Bill for letting pricey blue states avoid the tax credit.

But Arete Scholars, a nonprofit that distributes scholarships for 3,500 children to attend around 350 private schools in Georgia and Louisiana, expressed optimism this week that more states will follow Nebraska’s example.

“Nebraska is leading the way, showing what’s possible when we put children and families first,” Arthur Dupré, Arete’s president, said in an email Thursday. “As other states join in, we can open more doors of opportunity for kids, give families real choices, and create communities where opportunity and hope are within reach for every child.”