What the Federal Tax Credit for Scholarships Means for Families 

The school choice movement has seen dramatic growth over the past decade. More states than ever have enacted private school choice programs. Charter schools operate in more than 40 states. Education savings accounts have gone from policy concept to mainstream reality. And now, for the first time, Congress has enacted a permanent, nationwide scholarship tax credit designed to expand educational opportunity across all 50 states. 

In a recent episode of EdChoice Chats, recorded at the International School Choice and Reform Conference in Rome, John Schilling and Lauren May joined the conversation to explain what this new federal law does, how it works, and why they believe it could become one of the most significant education policies in decades. 

Schilling, who has worked in the school choice movement since the late 1990s and previously led the American Federation for Children, has spent the last eight years focused on this effort.  

“I’m really happy we finally did it,” Schilling said. “Lots of work ahead, but it’s going to be a really great victory and great opportunity for parents and kids throughout the country.” 

At its core, the policy allows individual taxpayers to redirect up to $1,700 of their federal tax liability to nonprofit scholarship granting organizations, commonly known as SGOs. Those organizations then use the funds to award scholarships to eligible students. The credit is both permanent and uncapped.  

“Technically, any taxpayer in America who has a liability could contribute,” Schilling said. “We could raise a lot of money for this… we believe this has the potential to help millions of kids around the country.” 

Lauren May, vice president of the federal scholarship tax credit at Step Up for Students in Florida, emphasized how practical and straightforward the credit can be for families and donors.  

“You can donate $1,700 to a qualified scholarship granting organization in any state,” she explained. “If you owed $1,700, that amount that you owe the government would be brought down to zero because you chose to give it to a scholarship granting organization instead of sending it directly to the IRS.” 

For those wondering where the money comes from, May offered a relatable example. Taxpayers can adjust their withholdings so that instead of overpaying the IRS throughout the year, they retain those funds and donate directly to an SGO.  

“It’s about $60 a paycheck,” May said. “You can choose now whether you want to give it to the IRS or give it to an organization that’s going to use it to create scholarships which will give educational options for kids and families all across the country.” 

One of the most significant features of the law is that it is not limited to private school tuition.  

“Students in public schools are actually eligible for this money,” May said. “So you could be a kid that’s attending public school and use the money for tutoring or extracurricular activities.” She pointed to examples like paying for band instruments, sports fees, or academic support. 

Schilling described the structure as intentionally broad.  

“It’s almost like a giant education savings account because there are so many eligible uses for this,” he said. That flexibility was designed to ensure families in diverse educational settings could benefit. 

Critics have argued that the policy would divert funding from public schools. Schilling firmly rejected that claim.  

“That’s completely false,” Schilling said. “It is adding money to the K–12 system. The only difference is the money is going to be for parents to decide what it is that they want to do with it, but it’s additive to the system. It does not affect the amount of money that the federal government or the states are providing for public education.” 

In Florida, where Step Up for Students helps administer large-scale scholarship programs, May says the experience has shown that choice policies and public schools can coexist and even complement one another.  

“Our public schools are doing really well since we’ve had scholarships,” May said, noting that more than 500,000 students participate in Florida’s state programs. She also highlighted creative partnerships, including public school districts serving as providers for scholarship students. A homeschooled or private school student, for example, might use scholarship funds to take a single algebra course from a local public school.  

“They can use their scholarship dollars to pay the public school district for that one class,” May said. “We think it’s helped districts in our state.” 

Eligibility for the federal tax credit is broad. According to Schilling, the income threshold is set at 300%of the area median income, which he describes as “a near universal bill” covering roughly 90% of K–12 students nationwide. 

There is, however, one key structural feature that will shape how the program unfolds: states must opt in. Governors, or others designated to handle federal tax matters for the state, have the authority to decide whether their states will participate. While taxpayers can still donate across state lines, families cannot access scholarships unless their state opts in. That makes engagement at the state level essential. “If your state does not opt in, you’re not going to be able to participate,” Schilling said. May encouraged families to contact their governors directly. Any taxpayer may claim the federal tax credit for a $1700 donation to an SGO, but the money can only go to an SGO in a participating state. 

Beyond eligibility and implementation, both guests emphasized what they see as the larger significance of the policy.  

“Parents in America, they want choices,” Schilling said. In his view, the federal scholarship tax credit extends that momentum into states where passing traditional private school choice legislation has proven politically difficult. “This federal scholarship tax credit is going to allow parents in states where we could never pass a private school choice law to actually have this opportunity.” 

For May, the opportunity is not only for families receiving scholarships but also for taxpayers who choose to contribute.  

“I think it’s really exciting that I can choose to give that money to a kid whose life could be truly impacted and changed just by making a few changes on our taxes,” May said. January 1, 2027, may feel distant, but she reminded listeners, “It’ll be here in the blink of an eye. And we want you all to be ready.” 

The conversation made clear that while the law has passed, the real work begins now. States must opt in. Scholarship granting organizations must prepare. Supporters must educate donors, accountants, and families about how the credit works. The model is new at the federal level, and as Schilling acknowledged, “The school choice movement has never dealt with anything like this before.” 

Still, both guests expressed confidence that with sustained effort, the policy could unlock educational opportunities on a scale not previously seen.  

As Schilling put it, the most important takeaway for parents is simple:

“It’s a great opportunity for you to have the power to choose the best educational environment for your child.” 

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For the full discussion of how the federal scholarship tax credit works and what it could mean for families in your state, listen to EdChoice Chats. 

Read our Parent’s Guide here!