Qualifying contributions for the Education Freedom Tax Credit begin on January 1, 2027. The program offers a federal income tax credit for qualifying cash gifts that support elementary and secondary school scholarships. In its announcement, the U.S. Department of the Treasury described proposed rules allowing eligible individuals to claim up to $1,700 annually, with a potential combined credit of $3,400 for married couples filing jointly. The program channels private giving through qualifying Scholarship Granting Organizations, commonly called SGOs, rather than paying the credit directly to schools or scholarship recipients.

What the proposed credit would mean for donors

The proposed regulations treat spouses as separate taxpayers for this purpose. Each spouse could claim up to $1,700 based on that spouse’s own qualified contributions. The $3,400 figure therefore describes two individual limits on a joint return; it does not give one spouse a $3,400 limit. Married donors planning to seek the combined amount should account for each spouse’s contributions separately when arranging their gifts and keeping records.

The IRS explains that the credit is nonrefundable. It can reduce federal income tax owed, but any amount exceeding the applicable tax liability will not itself produce a refund. Unused credit generally can carry forward for up to five years. A credit reduces tax, while a deduction reduces the income on which tax is calculated. These differences matter when assessing the value of a gift: the maximum stated credit is a limit, not a promise that every donor will receive that amount for the year of giving.

State tax benefits also affect the federal calculation. Treasury’s official fact sheet explains that a state tax credit allowed for the same qualified contributions reduces the amount eligible for the federal credit before the $1,700 individual cap applies. Donors cannot also take a federal charitable deduction for the portion of a contribution used for this credit. Keeping records of both federal and state claims will help donors avoid counting the same contribution incorrectly. U.S. citizens and residents may support an eligible SGO in any participating state, even when their home state does not participate.

The distinction between proposed and final rules remains important. The proposal permits reliance for qualified contributions made on or after January 1, 2027, in taxable years ending before publication of final regulations. Taxpayers, organizations, and states must follow the portions that apply to them in their entirety and consistently. This permission does not allow participants to select favorable provisions while disregarding related requirements. Donors should review the guidance in force when they give and when they prepare their returns.

How participation and scholarships would work

State participation establishes which organizations can receive qualifying gifts. Under the companion temporary regulations, a state must make its advance election for 2027 by January 1, 2027, and may complete that election by supplying its SGO list by February 15, 2027. An advance election alone does not complete the process. Donors should confirm the recipient’s listing rather than assuming that a state’s announced participation establishes an organization’s eligibility.

Before giving, donors should check the IRS SGO list and tell the organization that they intend the gift to qualify for the credit. They should retain the written acknowledgement, including the unique donor number. The temporary rules require an acknowledgement by January 31 of the year after the contribution. These records connect the gift to the tax claim and help distinguish a qualified contribution from an ordinary donation to the same organization.

The requirements for students differ from those for donors. IRS Notice 2025-70 describes eligible students as those eligible to enroll in a public elementary or secondary school whose household income for the calendar year before the scholarship application does not exceed 300 percent of area median gross income. SGOs must verify household income and family size. In general, a student must also reside in a state where the SGO appears on the state’s qualifying list; the proposed rules provide narrow exceptions for certain military and Tribal students. Families should seek the applicable local income threshold and application requirements from the organization, rather than treating a national dollar amount as the eligibility standard.

The same notice outlines duties that protect scholarship funds. A qualifying organization must keep qualified contributions in separate accounts, spend at least 90 percent of its income on scholarships for eligible students, and provide scholarships to at least ten students who do not all attend the same school. It cannot earmark contributions for a particular student. These rules mean that donors support a scholarship program, while the organization determines awards under the applicable requirements.

Treasury’s announcement describes eligible uses as including qualifying tuition, academic tutoring, special education services, books, supplies, and other education expenses connected with enrollment or attendance. These opportunities can support students with different educational needs. Families should ask the SGO which qualifying expenses its scholarships cover and what documentation it requires before relying on an award to pay a bill.

The fact sheet also distinguishes a donor’s credit limit from a student’s award. The $1,700 limit does not cap an individual scholarship; organizations determine amounts according to their missions, available funds, and qualified expenses. Eligibility does not guarantee funding. Families apply to participating SGOs, and qualifying scholarships are excluded from federal taxable income. A family does not need to owe federal income tax to benefit from a scholarship.

For donors and families, preparation begins with different questions. Donors need to establish that their gifts qualify and understand how the credit fits their tax circumstances. Families need to establish student eligibility, identify available awards, and learn which expenses an organization will fund. Reading the official guidance and speaking with the intended SGO can turn a general announcement into a more informed decision about giving or applying.

Editor’s note

And here’s the Good News: thoughtful giving can help families seek educational support suited to their children’s needs. Christians can approach that opportunity with care for their neighbors and honesty about what they can give. Learning the requirements, keeping clear records, and asking an organization how it serves students are practical ways to act responsibly. Which scholarship organization could you contact to learn how a qualified gift might help students in your community?