ESA compliance means following state rules for Education Savings Account use: spending only on approved educational expenses, maintaining proper documentation, and submitting required quarterly reports.
What is ESA Compliance?
ESA compliance encompasses all the rules and requirements governing how you use your Education Savings Account funds. This includes purchasing only from approved vendors for approved expense categories, maintaining receipts and documentation, submitting quarterly expense reports, and following state-specific program rules. Compliance requirements exist to ensure public education dollars are used appropriately for educational purposes. As of 2026, 18 states operate 21 ESA programs, each with somewhat different rules - making it essential to understand your specific state's requirements.
Key Takeaways
- Funds can only be used for approved educational expenses (tuition, curriculum, tutoring, therapies)
- All purchases require documentation: receipts, invoices, and provider credentials
- Quarterly expense reports are mandatory in most states, even if you made no purchases
- Violations can result in repayment requirements, account suspension, or termination
- Most compliance issues are innocent documentation mistakes, not fraud
Core Compliance Requirements
Core Compliance Requirements
- Use approved vendors
Purchase through ClassWallet Marketplace or verified approved vendors when possible
- Maintain documentation
Save itemized receipts in PDF, JPEG, or PNG format for every transaction
- Submit quarterly reports
File expense reports by deadlines even if expenses were minimal or zero
- Cover core subjects
Expenses must support reading, grammar, mathematics, social studies, and science
- Withdraw from public school
ESA students cannot be simultaneously enrolled in public school
Common Compliance Mistakes
The most frequent violations aren't intentional fraud - they're documentation gaps. Using Square or PayPal receipts without detailed invoices doesn't provide enough information. Failing to upload receipts promptly can deactivate your debit card. Missing quarterly report deadlines suspends accounts even when all purchases were legitimate. Another common issue: receiving both ESA funds and School Tuition Organization (STO) tax credit scholarships for the same student - this dual funding is prohibited in Arizona and results in termination. When uncertain about an expense, submit a pre-authorization form before purchasing.
Consequences of Non-Compliance
Consequences escalate based on severity and responsiveness. Minor documentation issues typically result in requests for additional information with 10 business days to respond. Unresolved issues lead to account suspension - quarterly funding stops until the matter is addressed. Continued non-compliance results in termination with 30 days to appeal. Financial penalties include repayment of disallowed expenses, and in fraud cases, fines up to 300% of the ESA award with referral to the Attorney General. The key point: responding promptly and cooperatively to questions prevents most issues from escalating.
Staying Compliant: Best Practices
Read your state's handbook annually - rules change, and what was allowed last year may not be this year. Document everything from day one - photograph receipts immediately, organize by category and quarter. Use ClassWallet Marketplace when possible for smoother approvals. Submit quarterly reports early, not at the deadline. Pre-authorize questionable purchases before buying. Respond immediately to any ESA office communications. Keep records 3-5+ years for potential future audits. Most families navigate compliance successfully by treating it as routine record-keeping rather than anxiety-inducing bureaucracy.
The Bottom Line
ESA compliance sounds more intimidating than it actually is in practice. The vast majority of families use their ESA funds without any issues. The fundamentals are straightforward: buy educational materials from approved vendors, save your receipts, submit quarterly reports on time, and respond promptly if questions arise. States want families to succeed with these programs - compliance requirements exist to protect program integrity, not to trap well-meaning parents. When in doubt, ask your state ESA office before making a purchase. Proactive communication prevents almost all compliance problems.
