New $1,700 School Scholarship Tax Credit Starts in 2027: How It Works

Those who donate money to school scholarships will be able to claim up to $1,700 as a federal tax credit starting in 2027. The Department of the Treasury and the Internal Revenue Service (IRS) published proposed rules for this new tax credit for school scholarships, officially known as the Education Freedom Tax Credit, on October 1. The program takes effect on January 1, 2027.

Married couples filing jointly will be able to claim up to $3,400.

This is the first federal tax credit of its kind and has two components: tax savings for the donor and scholarships for children from kindergarten through 12th grade to help pay for private school, tutoring, and other education expenses.

How Does Education Freedom Tax Credit Work

• Only cash donations to Scholarship Granting Organizations (SGOs) qualify.
• Generally, these organizations must be 501(c)(3) charities and appear on the list provided by a participating state.
• The credit is non-refundable: it reduces what you owe the IRS, but by itself does not generate a refund. Under the proposal, any unused portion can be carried forward for up to five years.
• You can donate to an eligible organization in another participating state even if you do not live there.

What the Education Freedom Tax Credit Scholarships Cover

According to the IRS, scholarships can be used to pay for private school tuition, tutoring, services for students with special needs, books, supplies, computers, and other education expenses.

Is My State Participating?

Each state decides whether to join the Education Freedom Tax Credit program. According to Treasury Secretary Scott Bessent, 30 states have already agreed to participate. The list is available on the IRS’s Federal Scholarship Tax Credit page.

The Treasury and IRS estimate that under the proposed rules, around 96% of children in participating states could be eligible to receive a scholarship, as long as their household meets the income requirements.

Program Size

The government estimates that by 2030, more than 11 million taxpayers could donate nearly $26 billion per year, enough to fund as many as 2.2 million scholarships annually.

Before Donating

• The rules are still proposed and may change before the final version.
• The credit applies to qualifying donations made starting January 1, 2027, so it would be claimed for that tax year.
• Confirm that the organization appears on your state’s official list.

Source: IRS, IR-2026-117, October 1, 2026: Treasury and IRS Issue Proposed Regulations to Implement the Education Freedom Tax Credit. This information is general and does not replace the advice of a tax professional.