Details of Public Law 119-21, section 70411 , One Big Beautiful Bill Act

The provision provides an income tax credit, limited to $1,700 per taxable year, to individual taxpayers that make a charitable cash contribution to an eligible organization that uses the contributions to grant scholarships for eligible students. The credit is required to be reduced by any amount allowed as a state tax credit for contributions made by the taxpayer during the taxable year. Additionally, any contributions for which the new credit is allowed is not considered for purposes of calculating the taxpayer’s charitable contribution deduction. The credit may be carried over for a maximum of five taxable years.

The provision requires an eligible, tax-exempt scholarship granting organization to (1) provide scholarships to 10 or more students who do not all attend the same school, (2) use 90 percent of the organization’s income on scholarships, (3) limit grants to qualified elementary or secondary education expenses, and (4) provide preference to prior year recipients and recipients with siblings, among additional requirements.

A student, scholarship recipient, must be eligible to enroll in a public elementary or secondary school and report prior year household income not to exceed 300 percent of the area median gross income.

The provision provides a gross income exclusion to the individual or dependent of that individual for scholarships received for qualified elementary or secondary education expenses of an eligible student, provided by a scholarship granting organization.

California does not conform to the tax credit for contributions to scholarship granting organizations.

California conforms by reference to Part III of Subchapter B of Chapter 1 of Subtitle A of the IRC, relating to items that are specifically excluded from gross income, as of the specified date of January 1, 2025, in RTC section 17131. As a result, California does not conform to the gross income exclusion for scholarships for qualified elementary or secondary education expenses.

The estimated revenue impact to conform to the above provision would result in the following loss:

26/27 27/28 28/29 29/30 ($80,000) ($250,000) ($350,000) ($350,000)