Healey, Newsom, Lamont, Whitmer and Sherrill send Treasury their §25F questions before deciding on 2027

Five governors who are still deciding whether to bring their states into the federal Education Freedom Tax Credit (§25F) for 2027 have put their questions to Treasury in writing. In a three-page letter dated October 22, 2026, Maura Healey of Massachusetts, Gavin Newsom of California, Ned Lamont of Connecticut, Gretchen Whitmer of Michigan and Mikie Sherrill of New Jersey asked Treasury Secretary Scott Bessent for “written guidance as soon as practicable so that Governors can make fully informed decisions regarding the 2027 program year.” Politico first reported the letter on October 26, and Education Week posted it the same day. Treasury didn't respond to Education Week's request for comment; the IRS told the outlet that more guidance on eligible expenses is coming “soon,” without giving a date.

Most of it is about running the program. The governors write that they want to know “whether and how the program can provide meaningful opportunities for public school students” while avoiding “unintended consequences that could divert resources from or otherwise weaken our public education systems.” They say the October 2 proposed and temporary regulations provide “important guidance” and that “significant questions remain.” Nearly every question that follows is about how a participating state would oversee SGOs and reach public school students. New York's Kathy Hochul, who said in May that she'd join only if public school students could benefit, read the same rules and announced on October 9 that New York will participate.

The calendar still works. A state takes part in 2027 by filing its advance election (IRS Form 15714) by January 1, 2027, then sending the IRS its list of scholarship granting organizations by February 15, 2027, under temporary regulation § 1.25F-5T(c)(3)(i)(B)(1) (the full §25F calendar). Lamont said on October 6 that he was asking federal officials for clarification and expected to know “within a month or so”. The letter, sent 16 days later, sets out what he and the other four want answered.

What they asked. On state authority: whether a state can require SGOs to maintain systems that protect student data, and what oversight a state has over a multistate SGO headquartered somewhere else. On fraud: what SGO information the IRS will make available to states, whether a state may set “generally applicable financial-integrity and anti-fraud requirements beyond the federal minimum” that leave student eligibility and qualified expenses alone, and what federal enforcement follows when an SGO breaks the rules. On public school students: which tutoring, special-needs services, transportation, educational technology, after-school and summer programming qualify as elementary and secondary education expenses. On reach: what a state can do to encourage access for low-income students, students with disabilities and students at high-poverty public schools without imposing requirements the rules prohibit, and whether it can collect and publish data on who receives scholarships. On cost: whether federal money is available for the oversight work. They also asked when Treasury expects to finalize the proposed regulations and whether any other guidance affecting 2027 is coming.

What the rules already say. Some of this has an answer on paper. Treasury's temporary regulations, which take effect without a comment period and apply from September 1, 2026, require every participating state to impose application, documentation and financial-reporting requirements on SGOs that are reasonably tailored to the state's certifications and to “the prevention and detection of fraud or abuse,” such as duplicate awards for the same expense (§ 1.25F-5T(e)(1)). What a state can't do is make SGOs operate more restrictively than §25F, for example by limiting the kind of school a recipient attends or the expenses a scholarship covers (§ 1.25F-5T(e)(2)). The governors' anti-fraud question asks where a generally applicable rule falls between those two lines. On information, the proposed rules require each SGO to send every state that lists it a copy of the annual §25F report it files with the IRS (§ 1.25F-4(d)(4)), along with the results of an annual financial and programmatic audit by a qualified independent third party (§ 1.25F-4(e)). That is what states get straight from SGOs; what the IRS itself will share is still open.

The public-school question. The most detailed request concerns a safe harbor that matters most to public schools. Under proposed § 1.25F-3(c)(6)(iii)(C), when an SGO pays for individual academic tutoring, or for special needs services for a special needs student, at a school in a low-income area, and the school picks the students based on need, those students count as income-eligible without anyone verifying household income. The school has to be in a HUD qualified census tract or certify that at least 80% of its students live in one. The SGO then needs an annual third-party audit, provided to the state, certifying among other things that the tutors or providers were qualified, that each student's need was “independently diagnosed by a professional not associated with the provider or vendor of the services,” and that the services “met appropriate quality standards, were provided with a duration and frequency commonly required to produce benefit.” The governors want each of those standards defined. Treasury's answer will decide how practical the safe harbor is for district foundations like the ones forming in Denver and Clark County.

Still open. The published rules don't say what SGO data the IRS will hand states, whether federal money will help pay for state oversight, or how the IRS will act against an SGO that breaks the rules. The letter points out that the proposed rules' preamble concludes the credit doesn't impose substantial costs on states because states can choose not to participate. The expense list is pending too: Kevin Salinger, Treasury's Deputy Assistant Secretary for Tax Policy, said on October 1 that the separate guidance on which expenses scholarships can pay for would be released by the end of the year, and that final regulations probably won't be in place until 2028, The 74 reported. Taxpayers may rely on the proposed rules for 2027.

For donors and organizations in these five states. Residents of California, Connecticut, Massachusetts, Michigan and New Jersey can claim the credit in 2027 whatever their governor decides: up to $1,700 per taxpayer, or $3,400 on a joint return when each spouse gives under the proposed rules, by giving to an SGO in a participating state. The election decides whether students who live in the state can receive §25F scholarships, because an SGO's scholarships go only to students who live in a state that listed it (how an opt-out moves the money out of state). A public school foundation or nonprofit that wants to serve these students can start now; forming the organization, getting tax-exempt status and opening a segregated §25F account all take time. Our free SGO builder walks through each step, the opt-in explainer shows how an election works, and each state's page tracks the decision: California, Connecticut, Massachusetts, Michigan and New Jersey.