The Treasury Department and IRS on Thursday released rules for a new federal tax credit intended to encourage private donations to K-12 scholarship organizations, giving donors a potential tax break of up to $1,700.
The Education Freedom Tax Credit is the first federal tax credit designed to support private contributions to scholarships for elementary and secondary school students. The program is set to take effect at the beginning of 2027.
Individual taxpayers may claim a nonrefundable credit of up to $1,700 for qualifying cash contributions to eligible scholarship-granting organizations. Married couples filing jointly may claim up to $3,400. Unused credits can be carried forward for as many as five years, according to the Treasury Department.
Taxpayers in every state can contribute to eligible organizations.
What the Education Tax Credit Covers
The Education Freedom Tax Credit, also known as the federal scholarship tax credit (FSTC) or U.S. school choice tax credit program, is a nonrefundable tax credit established under the One Big Beautiful Bill Act (OBBBA) signed into law by President Donald Trump on July 4, 2025.
Scholarships may be used to cover private-school tuition, tutoring, special-needs services, books, supplies, computers and other equipment, along with other eligible expenses related to a student's enrollment or attendance.
The Treasury and IRS estimate that more than 11 million taxpayers could make roughly $26 billion in qualified contributions annually by 2030. Those donations could support as many as 2.2 million scholarships per year.
As of Sept. 14, 30 states, including Iowa, Florida, Texas, Colorado, New Hampshire, and Virginia, have indicated that they would participate in the program.
Trump Reshapes Federal Education Programs
The tax credit arrives as the Trump administration reshapes federal education programs and services. On Wednesday, the Education Department and Treasury launched a new student-loan support portal for borrowers in default, allowing them to apply online for rehabilitation or consolidation and review discharge options.
Separately, on Tuesday, the department extended the deadline for borrowers to enroll in a temporary 1-percentage-point interest rate reduction to Dec. 31 from Sept. 30. Nearly 2 million borrowers have enrolled in autopay to receive the benefit, which will remain available through June 30, 2028. Borrowers in default must first consolidate their loans and enroll in a new repayment plan.
On the other hand, last week, Trump canceled $810 million in congressionally approved funding through a rare "pocket rescission," affecting immigration, education, and housing programs across seven federal agencies.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by MarketDash editors.
