I’ve heard from a few (very informed!) clients about the new federal tax credit that is proposed for 2027. Here is what we know thus far.

In early October 2026, the Department of Treasury and the IRS proposed regulations to implement the new Federal Scholarship Tax Credit, commonly referred to as the Education Freedom Tax Credit. While such credits exist in certain states, this would be the first federal tax credit supporting private contributions to K-12 scholarships.

Under the proposed regulations, eligible tax payers could claim an annual credit up to $1,700 ($3,400 for married couples filing jointly). The proposed regulation is supported by the Trump Administration and is in line with its priorities of expanding educational freedom and putting students first.

The credits would be directed to Scholarship Granting Organizations (“SGOs”). The funds would then be used to provide scholarships for eligible elementary and secondary school students. Participating states may opt in and identify eligible SGOs. As of now, 31 of 50 states have opted in (Wisconsin has yet to do so). If electing to participate, taxpayers can contribute to SGOs in any state of their choosing, regardless of their state of residency.

Taxpayers would make cash contributions to a qualifying SGO and notify them they intend to qualify for the credit. Taxpayers should keep the written acknowledgement as well as their unique donor number. Donations are not earmarked to a particular student. Taxpayers would then claim the credit on their income tax return using the SGO’s acknowledgement. The credit can reduce income tax to zero but any credit exceeding federal tax liability will be carried forward up to five years. Note that the donated amounts cannot also be claimed as charitable contributions (part of itemized deductions nor the new cash donation deduction for non-itemizers). Also note that any state credit claimed will reduce the amount of federal donation.

By 2030, Treasury and the IRS estimate that the program could support 600 to 700 SGOs, with more than 11 million taxpayers making nearly $26 billion in qualified contributions annually and funding as many as 2.2 million scholarships each year.

As of now, the credit is set to take effect on January 1, 2027 with 2027 tax year being the first year taxpayers can opt into the program. While it remains proposed regulation, the current guidance is said to be valid/applicable until any further announcement on the topic is released