A brand-new federal tax credit is set to launch on January 1, 2027, and for donors who give to qualifying scholarship organizations, it could be worth up to $1,700 per person or $3,400 for married couples filing jointly.

On October 1, 2026, the Treasury Department and IRS released proposed and temporary regulations implementing the Education Freedom Tax Credit under Section 25F of the Internal Revenue Code. The credit was created by the One Big Beautiful Bill Act and represents the first federal tax credit designed specifically to support private contributions for K-12 scholarships.

Here is what taxpayers need to know before the credit goes live.

What the Credit Is

The Education Freedom Tax Credit is a nonrefundable federal tax credit for individuals who make cash donations to approved Scholarship Granting Organizations, or SGOs. These are organizations that use donated funds to provide scholarships for eligible K-12 students to attend private, public, or religious elementary and secondary schools in participating states.

The credit is dollar-for-dollar. That means a $1,700 donation to a qualified SGO could reduce your federal tax bill by $1,700, not just your taxable income.

If you do not use the full credit in the year it is earned, unused amounts can be carried forward for up to five years.

Who Can Claim It

The credit is available to individual taxpayers who are citizens or residents of a participating state and who make a qualified cash contribution to an eligible SGO.

There are a few important limits to understand. The credit is only available to individuals. Contributions made through partnerships or S corporations do not qualify, even if they are otherwise deductible as charitable contributions. Contributions must also be made in cash. Digital assets and non-cash property are explicitly excluded under the proposed regulations.

You must also designate the contribution as a Section 25F contribution at the time it is made.

How It Interacts with State Tax Credits

Many states already have their own scholarship tax credit programs. The federal regulations include an ordering rule designed to protect the value of the federal credit. The $1,700 limit applies after reducing your qualified contributions by any state tax credit you receive. The intent is to make sure taxpayers can access as much of the federal credit as possible.

Amounts that exceed the allowed credit may still be deductible as charitable contributions under Section 170, if the usual requirements are met.

What Does Not Qualify

The proposed regulations are clear on a few things that will not count. Digital assets are excluded. Business contributions passed through from partnerships or S corporations are excluded. And the same dollars that generate the Section 25F credit cannot also be claimed as a charitable deduction.

What Needs to Happen Before January 2027

The credit does not start until contributions made on or after January 1, 2027. Between now and then, states must opt in to the program annually, and SGOs must apply for and receive approval to participate. Not every state will participate, and not every scholarship organization will qualify.

Taxpayers may rely on the proposed regulations now when planning contributions for the 2027 tax year. A public hearing on the proposed rules is scheduled for December 15, 2026.

Why This Matters for Planning

If you give to education-related causes, this credit is worth evaluating before year-end. Understanding how it works now gives you time to identify qualified SGOs in your state, plan the size and timing of your contribution, and coordinate with any existing state-level credits you may already be claiming.

The Education Freedom Tax Credit is a meaningful new tool, but like most tax credits, the details matter. Eligibility, ordering rules, carryforward limits, and state participation all affect what you actually receive.

If you want help determining whether this credit fits your situation, contact our office. We can walk through your charitable giving strategy and make sure you are positioned to take full advantage when the credit launches.