The Future of the EITC Is Being Decided Right Now

The Future of the EITC Is Being Decided Right Now

We have continued to field calls from our educational improvement organization and scholarship organization partners about the future of the Educational Improvement Tax Credit program, and there is a significant development to report. On June 25, the Pennsylvania Senate passed its own EITC legislation, and it points in the opposite direction from the House Bill 2632. Two competing visions of the program are now pending, one in each chamber, and the outcome will be settled in budget negotiations that are underway.

Here is where things stand and what it means for your organization.

What the Senate Passed                                                                                                 

The Senate amended House Bill 1667.  Other than changing the legislative citation for the EITC program, it is a continuation of the current program. Nothing about how your organization qualifies, reports, or receives contributions would change.  The only change was a modest increase in private school funding by an additional $25 million (about 6% of that program)

The Competing House Bill

The Senate action came after the House passed HB 2632 on June 22 by a vote of 105–97. HB 2632 takes a fundamentally different approach: it would make no changes for the 2026–27 fiscal year but would end the EITC and OSTC after that cycle and replace it in 2027–28, with a new “Education Options Tax Credits” program. Under that framework, today’s separate scholarship organization and EIO categories are absorbed into a single consolidated “scholarship granting organization” structure that funds all scholarship programs, early childhood programs, and educational improvement programs. The two-year commitment disappears in favor of annual reapplication, and organizations face a new 2% remittance, a 90% spend-down requirement, separate accounting, mandatory income verification, and Auditor General audits.

The credit rates also change.

All tax credits are now awarded on a one-year basis. Educational improvement contributions continue to receive a 90% tax credit without any multi-year commitment. However, contributions to standard K–12 scholarship organizations now receive only a 75% credit, with no two-year pathway to a 90% credit. In contrast, contributions supporting economically disadvantaged scholarships receive a 99% credit with no per-contributor cap. For scholarship organizations, this structure is likely to steer high-capacity donors toward the economically disadvantaged scholarship category, making the standard scholarship credit significantly less attractive than it is under current law.

What This Means for Your Organization Right Now

The most important practical point: the current 2026–27 application cycle is unaffected by either bill. Both bills leave the 2026–27 fiscal year intact, the Senate bill by continuing the program seamlessly, the House bill by deferring its changes to 2027–28. Contributors and organizations should proceed with this cycle as normal.

If enacted, the House’s approach brings a structural reset: re-qualification under a new framework, annual reapplication for every donor, new compliance obligations, and a changed rate structure.

Where This Goes From Here…

Procedurally, each chamber is now holding the other’s bill. The June 30 budget deadline has passed, and the budget, including the tax code provisions that will carry whatever EITC language survives, is being negotiated privately among the governor’s office and legislative leaders. We are monitoring the negotiations daily and will circulate additional updates.