96% of children in participating states would qualify for §25F scholarships under Treasury's income rules

Under the proposed §25F regulations Treasury and the IRS released on October 1, 2026, about 96% of school-age children in the states taking part would be eligible for an Education Freedom Tax Credit scholarship. The statute caps eligibility at a household income of 300% of area median gross income, but how "income" is counted decides who clears that line, and Treasury's own analysis shows its choice moves the share of eligible children from 64% to 96%. The rules are proposed, and families, SGOs, and states may rely on them for 2027. Our full breakdown of the rules covers the rest of the package, and the text is archived on our proposed regulations page.

Why the definition matters. §25F borrows "area median gross income" from section 42, the low-income housing credit, which in turn points to the HUD Section 8 rules. Section 8 household income is broad: it counts child support and alimony, and it imputes a return on a family's assets above $50,000, which can include unrealized appreciation in a home. Under that strict HUD definition, Treasury estimates 64% of elementary and secondary school-age children would qualify. The proposed rule keeps Section 8 as the base, including its adjustments for family size, but "would disregard items not received in cash by a member of the household because such items are unlikely to be documented and verifiable." Counting cash income only raises the share to 95%. Adding the safe harbors described below brings it to 96%. Treasury's table measures children ages 5 to 17 in the states that had made advance elections as of July 2026.

Who counts as the household. The household is the student plus the people living with the student. Income is measured for the calendar year before the scholarship application. For shared custody, the relevant household is the one where the student lives longest during the year; if the time is split evenly, it is the household with the higher income. The IRS expects to publish the income limits by area and family size each year in the Internal Revenue Bulletin, so SGOs will not have to build the tables themselves.

Four ways to verify. SGOs must verify income, and the proposed rule gives them four routes. The first is direct verification from documents such as pay stubs, prior-year federal or state tax returns, IRS transcripts, Forms W-2, and evidence of income those miss, like child support. The second is categorical: a letter dated within the last 12 months showing that someone in the student's household is currently approved for SNAP, TANF, WIC, Section 8 housing, or SSI. Treasury estimates about 10 million children ages 5 to 17, in about 6 million households in participating states, live with a recipient of one of these programs. School-wide free or reduced-price lunch eligibility does not count, because the statute requires a household-level determination, and Treasury has asked for comments on adding state or tribal programs to the list. The third is a foster-child safe harbor: foster children are treated as meeting the income test without verification.

The fourth route is a safe harbor for individual tutoring or special-needs services at schools in low-income areas. If the school is in a HUD qualified census tract, or certifies that at least 80% of its students live in one, and the school picks the students based on academic or special need, those students are treated as meeting the income test. The SGO must obtain an annual third-party audit of its use of the safe harbor and give the report to the state. Treasury estimates this route makes about 170,000 students eligible who otherwise would not be.

SGOs can set a lower bar. The 300% figure is a ceiling, not a requirement to serve everyone under it. Treasury's preamble says an SGO that limits scholarships to households at or below 50% of area median gross income, and meets every other requirement, is still an eligible SGO. Students must also be eligible to enroll in a public elementary or secondary school, and they must live in the state whose SGO list the organization is on, with narrow exceptions for military families and families on Indian lands.

For families, the practical takeaway is that most households will qualify, and a recent benefit letter or last year's tax return is usually all it takes. For SGOs, building intake around the categorical and foster-care routes cuts paperwork for the families least likely to have it ready. Our guides to income verification for SGOs and scholarship eligibility walk through the details, the states page shows whether your state is participating, and the free SGO Builder covers setting up an organization from the start.