Starting January 1, 2027, a new federal tax credit will fund K–12 scholarships. It is a tax break for donors, not money sent to parents, and whether your child can benefit depends on your state.
Last updated: November 4, 2026. Some rules are still being finalized; we will update this post as guidance is released.
The short version
Congress created this credit in the One Big Beautiful Bill Act, signed July 4, 2025. In the tax code it is Section 25F. You may see it called the Federal Scholarship Tax Credit (the IRS’s name) or the Education Freedom Tax Credit.
It works in three steps:
- A donor gives cash to an approved nonprofit called a Scholarship Granting Organization (SGO).
- The donor claims a federal tax credit for that gift, up to $1,700 per person per year.
- The SGO pools donations and awards scholarships to eligible K–12 students.
The tax credit goes to the donor. Families receive scholarships from the SGO. Parents don’t claim this credit for their own child’s school costs, and the government doesn’t send money directly to families.
Donors and scholarship families: two different roles
| Donors | Scholarship families | |
|---|---|---|
| What they do | Give cash to an approved SGO | Apply to an SGO |
| What they get | A tax credit up to $1,700 ($3,400 for a married couple filing jointly) | A scholarship, if selected |
| Where they live | Anywhere in the U.S. | A state that has opted in |
| Income limit | None | At or below 300% of area median income |
A parent can be a donor too, but can’t direct the gift to their own child. The SGO chooses recipients.
For donors: how the credit works
- A credit, not a deduction. A credit lowers your tax bill itself, dollar for dollar. A deduction only lowers the income you’re taxed on.
- Capped and nonrefundable. You can claim up to $1,700 per taxpayer. Under Treasury’s proposed rules, each spouse counts separately, so a joint return can claim up to $3,400. The credit can reduce your tax to zero but won’t produce a refund beyond that. Unused credit carries forward up to five years.
- Cash only, starting 2027. Stock, property, and crypto don’t qualify. Gifts made in 2026 don’t count.
- No double benefit. The credited amount can’t also be deducted, and the same dollar can’t earn a state tax credit too. Money given above the credit may be deductible under normal charitable rules.
- Claimed on Form 8525. The IRS had not released this form as of November 4, 2026.
For families: who can get a scholarship
A student is eligible if they:
- live in a state that has opted in,
- are eligible to enroll in a public school, and
- live in a household with income at or below 300% of the area median income for their area.
Treasury estimates that limit covers about 96% of children in participating states. Area median income varies by county, so check yours. Being eligible doesn’t guarantee a scholarship. SGOs have limited funds and choose recipients. By law, they must give priority to students who had a scholarship the year before, and then to those students’ siblings.
What can a scholarship pay for?
The law uses the same K–12 expense list as Coverdell education savings accounts. That list includes:
- tuition and fees
- academic tutoring
- special needs services
- books, supplies, and equipment
- uniforms, transportation, and extended-day programs required or provided by a school
- computer technology, equipment, and internet access used during school years
A laptop for school? Under that list, computer equipment the student uses during school years appears to qualify. But the IRS has said more guidance on qualified expenses is coming, and each SGO sets its own policies. Check with the SGO before counting on it.
Scholarships can support students in public, private, or religious schools. Expenses must be connected to a K–12 “school” as defined by state law, so whether homeschool or independent-study costs qualify may depend on your state and on pending federal guidance.
Which states are in?
As of October 22, 2026, the IRS lists 30 participating states, including Texas, Florida, Georgia, Ohio, Colorado, and Virginia. New York has announced it will join.
California has not opted in as of November 4, 2026. That creates a split many people don’t expect:
- A California donor can give to an SGO in a participating state and claim the credit.
- A California student cannot receive a scholarship from this program unless California opts in.
States have until February 15, 2027 to submit their 2027 SGO lists, and each state decides again every year.
What’s still unsettled
- Final IRS guidance on qualified expenses and what counts as a “school”
- Treasury’s proposed rules, which are open for comment through December 1, 2026, with a possible hearing December 15
- The release of Form 8525
- Which additional states will opt in
Practical next steps
Parents: Check the IRS participating-states list, look up your area’s income limit, and watch for SGOs approved in your state. Don’t make enrollment or purchase decisions based on a scholarship you haven’t received.
Donors: Confirm the organization is an approved SGO, give on or after January 1, 2027, and ask a tax professional how the credit fits your situation.
This article is general information, not tax or legal advice.
