Education Freedom Tax Credit: up to $1,700 from 2027

What the credit is

A dollar-for-dollar credit for cash gifts to scholarship organizations.

Section 25F of the tax code, enacted in 2025, creates the Federal Scholarship Tax Credit, which the Treasury calls the Education Freedom Tax Credit. Beginning in 2027, an individual can claim a nonrefundable federal income tax credit of up to $1,700 for qualified cash contributions to eligible Scholarship Granting Organizations (SGOs). Under proposed regulations issued on October 1, 2026, married couples filing jointly may claim a combined credit of up to $3,400. A credit reduces the tax itself, so a $1,700 credit cuts a $5,000 tax bill to $3,300; because it is nonrefundable, it cannot go below zero. Unused credit can be carried forward for up to five years under the proposed rules.

Which states are in

30 states had opted in for 2027 by September 14, 2026.

A state, or the District of Columbia, has to choose to participate and give the IRS a list of SGOs before donations to organizations there can earn the credit. The IRS lists these states as having made an advance election for 2027, as of September 14, 2026:

Alabama, Alaska, Arkansas, Colorado, Florida, Georgia, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, North Carolina, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, West Virginia, and Wyoming.

The IRS also says taxpayers may contribute to an eligible SGO regardless of their state of residence, so someone in a state that has not opted in can still give to an organization in one that has. Check the IRS Federal Scholarship Tax Credit page for updates to the list.

What the scholarships pay for

K–12 costs, not only tuition.

According to the IRS announcement, scholarships can cover a broad range of qualified elementary and secondary education expenses: private-school tuition, academic tutoring, special-needs services, books, supplies, computers and other equipment, and other qualifying costs connected with a student’s enrollment or attendance. The law limits scholarships by household income; the proposed rules would generally ignore non-cash items such as imputed return on home equity and streamline eligibility for families in needs-based programs and for foster children. Treasury and the IRS estimate that about 96% of children in participating states would be eligible.

How a donation qualifies

Cash, to an organization on the list.

• Cash only: the credit is for qualified cash contributions.
• An eligible SGO: generally a 501(c)(3) public charity that keeps contributions separately, meets the scholarship and operating rules, and is on its state’s SGO list. The proposed rules let donors generally rely on an organization’s inclusion on the IRS SGO list.
• No Social Security number to the charity: the IRS plans unique donor numbers so SGOs do not need to collect donors’ SSNs.
• State credits too: for people who also qualify for a state tax credit, the proposed rules include an ordering rule that the IRS describes as taxpayer-favorable.

The organization sends a donor acknowledgment; keep it with your records.

Where the rules stand

Proposed, with reliance from January 1, 2027.

Treasury and the IRS issued proposed regulations, with companion temporary regulations for states and SGOs, on October 1, 2026 (IR-2026-117). Taxpayers, states, and SGOs may rely on the proposed regulations for qualified contributions beginning January 1, 2027. Proposed rules can change before they are final, so the $3,400 joint figure and other details are worth rechecking before you give. The credit applies to tax years ending after December 31, 2026, so the first claims appear on 2027 returns filed in 2028. For how a credit interacts with the rest of your tax, see the 2026 tax brackets; for another new tax-advantaged account for children, see Trump Accounts.