TaxWrenWhat changed
- Treasury and the IRS proposed rules on October 1, 2026 for the federal scholarship tax credit (section 25F, also called the Education Freedom Tax Credit). It starts with cash gifts made on or after January 1, 2027.
- The credit is dollar for dollar, up to $1,700 a year per person. Under the proposed rules a married couple filing jointly can claim up to $3,400 if each spouse gives up to $1,700.
- It only counts for gifts to scholarship granting organizations listed by a state that opted in. Any state tax credit for the same gift reduces the federal credit.
On this page
On October 1, 2026, Treasury and the IRS proposed the rules for the new federal scholarship tax credit (IR-2026-117), and the Federal Register published them on October 2, 2026. Starting with cash gifts made on or after January 1, 2027, a US taxpayer who gives to a qualifying K-12 scholarship organization can take up to $1,700 off their federal income tax. Under the proposed rules, a married couple filing jointly can claim up to $3,400.
What did Treasury and the IRS publish?
The credit itself was enacted in 2025 as section 25F of the tax code, which the IRS also calls the Education Freedom Tax Credit. Two documents now say how it will work:
- Proposed regulations (REG-117199-25) on who can claim the credit, how state credits reduce it, what scholarship organizations must do and how gifts are reported. They are not final, and the details can change after the comment period.
- Temporary regulations (TD 10057), in force from December 1, 2026, so states and scholarship organizations can register and set up donor acknowledgements before the credit starts.
| Rule | Under the proposed regulations |
|---|---|
| Credit per taxpayer, per year | Up to $1,700 |
| Married filing jointly (proposed) | Up to $3,400, if each spouse gives up to $1,700 |
| First gifts that count | Cash given on or after January 1, 2027 |
| Refundable? | No; unused credit carries forward up to 5 years |
| Students who can get scholarships | Household income up to 300% of area median gross income |
| How to claim | Form 8525, with the unique donor number from each organization |
| Comments on the proposed rules due | December 1, 2026 |
| Public hearing | December 15, 2026 |
Source: proposed regulations REG-117199-25 and IRS IR-2026-117.
The joint-return figure is the biggest choice in the proposal. The law caps the credit at $1,700 for "any taxpayer", and Treasury and the IRS read that as $1,700 for each spouse on a joint return. That reading is part of the proposal, so it is not settled until the rules are final.
Who can claim the credit?
Individuals who are US citizens or residents, for cash they give to a scholarship granting organization (SGO). The gift has to meet these conditions:
- It goes to an organization on a list from a state that has opted in. When the proposed rules were published, 30 states had made an advance election to take part, and more can join. The IRS publishes the combined list, and you can rely on it at the time you give.
- You can give to an organization in any participating state, not only your own.
- It is cash, and you designate it as a qualified contribution when you give.
The scholarships go to K-12 students in households with income up to 300% of the area median gross income. They can pay for private school tuition, tutoring, special-needs services, books, computers and other education expenses, and the student does not pay income tax on them.
How is the credit figured?
Add up your qualified contributions for the year, subtract any state tax credit you claim for the same gifts, and the credit is the smaller of that amount and $1,700. Because the credit is nonrefundable, it cannot be more than your federal income tax. Whatever you cannot use carries forward for up to 5 years.
When does it apply?
To gifts made on or after January 1, 2027, claimed on the federal return for that year. Taxpayers, states and scholarship organizations can rely on the proposed rules for gifts from that date, even before the rules are final. The temporary rules for states and organizations take effect on December 1, 2026.
What should you do?
Anyone can comment on the proposed rules until December 1, 2026 through regulations.gov (docket REG-117199-25). A public hearing is scheduled for December 15, 2026 if anyone asks to speak.
Do TaxWren's calculators include this credit?
Not yet. The income tax calculator, the 1099 tax calculator and the estimated tax calculator show federal tax before this credit. If you expect to claim it, subtract it from the federal income tax they show; it cannot take that tax below zero. We are following the rules and will review the calculators once they are final and the IRS publishes Form 8525.
Sources
- IRS: IR-2026-117: Treasury and IRS issue proposed regulations to implement the Education Freedom Tax Credit (official)
- Federal Register: Federal Scholarship Tax Credit, proposed rule (REG-117199-25) (official)
- Federal Register: Federal Scholarship Tax Credit, temporary regulations (TD 10057) (official)
Figures come from the official documents listed above. See our methodology and editorial policy. This article is general information, not tax advice.
Frequently asked questions
How much is the federal scholarship tax credit?
Up to $1,700 a year per taxpayer, matching the cash you give to a qualifying scholarship granting organization dollar for dollar. Under the proposed rules, spouses on a joint return can each claim up to $1,700, so up to $3,400 together. A state tax credit for the same gift reduces the federal credit.
Is the Education Freedom Tax Credit refundable?
No. It can lower your federal income tax to zero but not below. Credit you cannot use carries forward for up to 5 years.
Can I give to a scholarship organization in another state?
Yes. You can give to any organization on the IRS list of scholarship granting organizations, whatever state you live in, as long as a participating state lists it. The proposed rules let you rely on the IRS list at the time you give.
Can I deduct the gift as a charitable contribution too?
Not the part that gets the credit. If you give more than the credit, the rest may be deductible if it meets the usual charitable contribution rules.
How do I claim the credit?
On Form 8525, Federal Scholarship Tax Credit, with your federal return for the year you gave. The organization must send you a written acknowledgement with a unique donor number by January 31 of the next year, and you report that number on the form.
Run your own numbers
- Income tax calculator
Federal and state income tax owed for 2026.
- Estimated tax calculator
Quarterly federal estimated tax (Form 1040-ES): this year's tax, the safe amount from 90% of this year or 100%/110% of last year, withholding and every due date.