What the Federal Tax Credit for Scholarships Means for Families
We explain what the Federal Tax Credit for Scholarships does for families, how it works, and why it could become one of the most significant education policies in decades.
For the first time in history, the U.S. Congress has enacted a federal tax credit for individuals’ contributions to nonprofit organizations distributing K–12 education scholarships. Included in the sweeping One Big Beautiful Bill Act, the federal “Individual Tax Credit for Qualified Contributions to Scholarship Granting Organizations” (FTCS) represents a notable milestone in the decades-long effort to broaden educational opportunity for American families.
Signed into law in July 2025 and effective January 1, 2027, section 25F of the Internal Revenue Code will allow individual taxpayers to receive a dollar-for dollar federal income tax credit for donations made to Scholarship Granting Organizations (SGOs) that meet federal requirements.
The credit is permanent and uncapped at the federal level. Every U.S. taxpayer with federal tax liability may give a donation to SGOs in a “Covered State” and claim a federal tax credit on their tax return for the amount of that donation, up to $1,700 (not to exceed the donor’s tax liability). Donors claiming the federal tax credit may not claim a charitable deduction or a state tax credit (if available) for the same dollars.
“Covered State” means a state which elected, through a governor or proper authority, to participate in section 25F and provided the IRS a list of SGOs meeting federal requirements.
On or after January 1, 2026, states may file an Advance Election to Participate, IRS Form 15714, electing to participate in the FTCS in 2027. After federal rules for the FTCS are completed in 2026, the IRS will accept lists of SGOs agreeing to meet federal requirements from each state that has elected to participate.
No federal provisions prevent a student from receiving a scholarship from an SGO participating in the FTCS while the student is also participating in a state school choice program. The IRS is currently crafting final rules.
There will be another public comment period after final rules are drafted in 2026. EdChoice will provide updates throughout 2026 on the rapidly evolving FTCS.
