Federal Scholarship Tax Credit Starts in 2027: What Donors Should Know

On October 1, 2026, the Treasury Department and the IRS released proposed regulations for a new federal credit under section 25F of the Internal Revenue Code, which the agencies call the Education Freedom Tax Credit and the IRS web page calls the Federal Scholarship Tax Credit. Starting January 1, 2027, an individual who gives cash to a qualifying scholarship organization can subtract part of that gift directly from federal income tax. Because it is a credit and not a deduction, it works differently from the charitable giving rules most households already know.

Who is affected

Anyone who expects to give to a K-12 scholarship fund in 2027 and owes federal income tax is the main audience. Because the credit is nonrefundable, the IRS release describes it as reducing the tax you owe; it does not create a refund by itself. Households with no federal tax liability should not count on benefiting.

States and SGOs are affected too. A state decides whether to participate. The IRS page says a state must submit Form 15714, the advance election to take part for 2027, and must review and certify each organization on its list. An SGO must be a tax-exempt public charity described in section 501(c)(3); the IRS page says private foundations do not qualify, and the organization must be located in the state, keep proper accounts of scholarship money and follow the eligibility rules.

The IRS says scholarships may cover a broad range of elementary and secondary education costs, including private-school tuition, tutoring, special-needs services, books, supplies and computers. The release also states that taxpayers may give to an eligible SGO regardless of where they live. Treasury and the IRS estimate that about 96% of children in participating states would be eligible for scholarship funds under the proposed rules and safe harbors; that is the agencies' own estimate, not a figure you can rely on for any one family.

Effective date and deadlines

• October 1, 2026: proposed and temporary regulations issued.
• January 1, 2027: the credit begins for qualified contributions.
• Before you give: the IRS page says you cannot claim the credit for gifts in a state until that state has elected to participate and submitted its approved SGOs to the IRS. The program page links to a state portal where those elections are handled.

Proposed regulations can change before they become final, so treat the details as a preview.

What to do now

1. Decide whether a scholarship gift fits your giving plans for 2027. This credit is separate from your usual charitable giving.
2. Check the IRS Federal Scholarship Tax Credit page and your state's announcements to learn whether your state, or the state of the group you want to support, has opted in.
3. Confirm that the organization appears on that state's approved SGO list. A gift to a group that is not on a list may not qualify.
4. Make the gift in cash. The IRS release speaks of qualified cash contributions.
5. Keep the receipt and the SGO's name, date and amount of each gift, the same way you would for any donation.
6. If you make estimated payments, remember that a credit lowers your final tax. Ask us how it fits with your quarterly plan before you change a payment.
7. Wait for final regulations and the 2027 form instructions before you rely on exact reporting steps.

How it connects to our guides

This credit sits beside the ideas in our charitable giving guide, though a credit and a deduction are not the same thing; see how a deduction depends on the choice explained in standard versus itemized deductions. Parents weighing education costs can read about education credits and 529 plans and the child tax credit and dependents. To see how a credit changes what you owe during the year, read about estimated taxes, and check the tax calendar for dates. Illinois residents can start with our Illinois tax overview; we have not verified whether Illinois has opted in, so confirm that with the IRS state list and the state's own announcements.

How we can help

We can look at your expected 2027 federal tax and explain whether a nonrefundable credit would reduce it, and we can keep the paperwork organized once the final rules and forms are out. We do not choose a charity for you or confirm a state's participation. This is general information and not advice for your personal circumstances.

Frequently asked questions

General information only, not tax, legal or accounting advice for your situation. Rules, limits and deadlines change; confirm the current rules with the official source or a qualified professional before you act. Reading this page does not create a professional relationship with CPA Tax Payroll and Accounting Corp.