Starting January 1, 2027, individual taxpayers can claim dollar-for-dollar tax credits up to $1,700 annually for contributions to certified scholarship-granting organizations under rules proposed by the U.S. Treasury Department on October 1, 2026, for the Federal Scholarship Tax Credit.
Treasury Sets Eligibility for Federal Scholarship Tax Credit
The regulatory package issued by the Department of the Treasury and the Internal Revenue Service establishes the framework for the Federal Scholarship Tax Credit, also known as the Education Freedom Tax Credit.
Under the temporary and proposed regulations, children enrolled in need-based programs such as nutrition assistance will be automatically eligible for scholarships. Foster children would not have to provide any income verification when they apply.
Families earning up to three times their area’s median income can qualify for the scholarships. According to Treasury Department estimates, roughly 96% of the nation’s K-12 students will qualify for support under the program guidelines. In just a few years, after taxpayer donations pick up, the Treasury Department and the IRS predict the program will direct nearly $26 billion into as many as 2.2 million scholarships annually.
States Participate and File Guidelines Under Section 25F
Enacted under Section 25F of the Internal Revenue Code as part of the One, Big, Beautiful Bill Act signed on July 4, 2025, the program requires states to voluntarily elect to participate and submit certified lists of qualifying scholarship-granting organizations located within their borders.
As of the regulatory release, 31 states plan to participate in the nationwide initiative.
In the newly released guidance, the Treasury Department clarified that married couples filing jointly can contribute up to $3,400 annually, receiving a dollar-for-dollar tax credit. Nathan Diament, executive director of the Orthodox Union Advocacy Center, noted that the provision literally doubles the potential for the program to transform funding for religious education. Treasury Secretary Scott Bessent stated that the Education Freedom Tax Credit introduces a fresh phase of educational opportunity and choice by creating the nation’s first nationwide school choice program.
Education Leaders Debate Public School Access to Credits
Raymond Pierce, president and CEO of the Southern Education Foundation, pointed out that eligible expenses include tutoring and other educational services for students attending public schools. Sydney Altfield, CEO of Teach Coalition, stated that if regulations are released and public schools cannot benefit from the tax credit, she will not advocate for them, emphasizing that no child should be left behind.
Public dollars belong in public schools.
Jonah Allon, deputy communications director for New York Gov. Kathy Hochul stated that the credits have the potential to expand academic opportunity without diverting resources from public school budgets. Meanwhile, opponents such as Svante Myrick, president for the People For the American Way, released a statement calling the new rules part of an effort to undermine public schools by draining students and money from them.
Agencies Implement Regulations Leading to January 2027
The Treasury and the IRS released temporary regulations under Treasury Decision 10057 alongside a Notice of Proposed Rulemaking under REG-117199-25 to put the required administrative, operational, and procedural infrastructure in place ahead of the January 1, 2027 effective date for taxpayer contributions. Tax-exempt public charities seeking scholarship-granting organization status must establish segregated Section 25F accounts, adapt operational procedures, and register electronically through the newly established IRS portal.