Starting in 2027, you can redirect up to $1,700 of your federal income taxes ($3,400 for married couples) to a non-profit organization that gives K-12 students scholarships. This is possible because of a new federal law that creates a dollar-for-dollar tax credit for these donations. This means if you donate $1,700, your federal tax bill is reduced by $1,700, making the donation essentially free for you.
The primary conflict arises from a specific rule within the federal law itself: the state “opt-in” requirement.1 This provision dictates that a child is only eligible to receive a scholarship if their state’s governor (or another designated state official) actively chooses to participate in the program. This rule transforms a federal tax benefit into a state-by-state political decision, creating an immediate and unequal system where a child’s access to funds depends entirely on their local politics, not their family’s needs.
This program is significant, as an estimated 83% of U.S. families with children are income-eligible to receive these scholarships.3
Here is what you will learn:
- 💰 How to turn your federal tax payment into a K-12 scholarship at zero net cost to you.
- ⚖️ The crucial difference between a tax credit and a tax deduction and why the credit is much more powerful.
- 🎓 How to determine if your child is eligible to receive thousands of dollars for educational expenses.
- ✅ The strict rules that non-profit Scholarship Granting Organizations (SGOs) must follow to handle these funds.
- ❌ Common and costly mistakes that donors and families must avoid when participating in the program.
The Three Key Players: Donors, SGOs, and Families
This new federal program creates a relationship between three important groups. Understanding the role of each is the first step to seeing how the money flows from your tax bill to a student’s education.
First is the Donor. This is any individual person who owes federal income tax and files a Form 1040.5 Corporations and businesses are not eligible to make donations for this specific federal credit.7
Second is the Scholarship Granting Organization (SGO). An SGO is a special kind of non-profit that acts as the middleman . It collects the cash donations from donors and then awards that money as scholarships to eligible students .
Third is the Family. A student is eligible to receive a scholarship if they live in a household with an income below 300% of the Area Median Gross Income (AMGI).3 The money can be used for many different K-12 educational costs, from private school tuition to homeschool curriculum.3
The Core Conflict: A Federal Law Dependent on State Politics
The program was created by a federal law called the “One Big Beautiful Bill Act” (OBBBA) on July 4, 2025.10 It established a permanent, dollar-for-dollar tax credit to encourage private donations for K-12 education.2 The goal was to expand school choice without creating a new government spending program.2
However, a last-minute change created a major hurdle. The law includes a state “opt-in” rule, which means students can only get scholarships if their state’s governor agrees to participate.3 The governor must send a list of approved SGOs in their state to the U.S. Department of the Treasury each year.3
The direct consequence of this rule is that your child’s eligibility is not just about your income; it’s about your zip code and your state’s politics. A family in one state might get a scholarship, while an identical family in a neighboring state gets nothing, simply because their governors disagree on the policy.1 This has already created a sharp political divide, with some governors promising to opt in and others promising to opt out.11
This situation is further complicated because the U.S. Department of the Treasury has been given the power to write the final rules for the program.3 Key details are still undecided, such as how to define an SGO “located in the State” or exactly how SGOs must calculate their spending.10 This uncertainty makes it hard for states and SGOs to prepare, which could lead to a rocky start when the program officially launches in 2027.10
Why a Tax Credit is More Powerful Than a Deduction
It is critical to understand the difference between a tax credit and a tax deduction. They sound similar, but their financial impact is completely different. A tax credit is a dollar-for-dollar reduction of the final tax you owe. A tax deduction only reduces the amount of your income that is subject to tax.5
This makes the scholarship donation credit incredibly valuable. A $1,700 donation results in a $1,700 reduction in your tax bill, making your net cost $0. If it were a deduction, that same $1,700 donation would only be worth a fraction of that amount, depending on your tax bracket.
| Donation as a Tax Deduction vs. a Tax Credit | |
| Your Tax Bracket | Value of a $1,700 Deduction |
| 22% | $374 |
| 24% | $408 |
| 32% | $544 |
| 37% | $629 |
| Any Bracket | Value of a $1,700 Credit |
| Any | $1,700 |
Real-World Scenarios: See the Credit in Action
To understand the practical power of this credit, let’s look at three common situations that will occur starting in 2027.
Scenario 1: The Single Donor
Maria is a single tax filer and calculates that she will owe $4,000 in federal income tax for 2027. She wants to support education but also wants to be smart with her money. She finds an approved SGO and makes a donation.
| Maria’s Action | The Financial Consequence |
| Maria donates $1,700 in cash to a federally approved SGO. | Her federal tax bill is directly reduced from $4,000 to $2,300. The $1,700 she donated costs her nothing. |
Scenario 2: The Married Couple
David and Sarah file their taxes jointly and have a federal tax liability of $12,000. They decide to contribute the maximum amount allowed for their filing status.
| The Couple’s Action | The Financial Consequence |
| David and Sarah donate $3,400 to an approved SGO. | Their federal tax bill is directly reduced from $12,000 to $8,600. Their donation has a net cost of $0. |
Scenario 3: The Donor in a State with Its Own Credit
Michael lives in Georgia, which has its own state-level scholarship tax credit program.12 He wants to take advantage of both the state and new federal programs. The federal law says you cannot claim both a state and federal credit for the same dollar donated.7
| Michael’s Action | The Financial Consequence |
| Michael makes two separate donations to the same Georgia SGO: one for $2,500 and another for $1,700. | He claims a $2,500 credit on his Georgia state taxes and a $1,700 credit on his federal taxes. By making two distinct donations, he legally maximizes his benefits. |
For Donors: Your Step-by-Step Guide to Giving Smartly
Participating as a donor is designed to be simple, but you must follow the rules precisely to ensure you receive your tax credit.
Step 1: Confirm You Have a Federal Tax Liability
This is a non-refundable credit, which means it can only reduce your tax bill to zero.7 If you do not owe any federal income tax, you will not get any financial benefit from this program.
Step 2: Find a Federally Approved SGO
A donation only qualifies if it goes to an SGO on an approved list. Each year, the governor of a participating state will submit a list of eligible SGOs to the U.S. Treasury.3 You will be able to find these lists on your state’s department of revenue or education websites, or through national advocacy groups like EdChoice.14
Step 3: Make a Cash Donation
The law is very specific: the donation must be made in cash.5 This means you cannot donate appreciated stocks, property, or make a grant from a Donor-Advised Fund (DAF) to claim this particular federal credit.5
Step 4: Get Your Official Receipt
For any donation of $250 or more, the IRS requires you to have a written acknowledgment from the charity.17 This receipt from the SGO is your proof of donation. It must state the cash amount and confirm that you received no goods or services in return.17
Step 5: Claim the Credit on Your Tax Return
When you file your 2027 federal income taxes (which you will do in 2028), you will claim the credit on your Form 1040. The IRS will release a specific form for this, likely similar to other credit forms like Form 8863.5
Mistakes to Avoid: Donor Pitfalls That Will Cost You
Making a simple mistake can cause you to lose the tax credit entirely. Be sure to avoid these common errors.
- Donating Ineligible Assets. The law only allows for cash contributions. If you donate stock or other property, you may get a normal charitable deduction, but you will not get the dollar-for-dollar federal credit.5
- Using a Donor-Advised Fund (DAF). You cannot use a DAF for this credit. The law explicitly prohibits it because you already received a tax benefit when you put money into the DAF.5
- Trying to Pick a Specific Student. You are strictly forbidden from earmarking your donation for a specific child, including your own relative.3 This is a donation to a scholarship fund, not a direct payment. Attempting to do so will void the credit.
- Donating to a Non-Approved SGO. The SGO must be on the official list submitted by the state to the U.S. Treasury. Donating to a non-profit that isn’t on this specific list will not qualify for the credit.3
- “Double-Dipping” on a Single Donation. You cannot use the same donation to claim both a state tax credit and the federal tax credit. The federal credit amount is reduced by any state credit you claim for the same contribution.7
For Families: Your Step-by-Step Guide to Getting a Scholarship
For families, securing a scholarship requires being proactive and understanding the eligibility rules.
Step 1: Check if Your State Has “Opted In”
This is the most important first step. If your state’s governor has decided not to participate, your child is not eligible for a scholarship, regardless of your income.3 You will need to check your governor’s official website or your state’s department of education for this information.
Step 2: Check Your Household Income
Your household’s income from the previous year must be below 300% of the Area Median Gross Income (AMGI) for your county or metropolitan area.3 AMGI is a number calculated by the federal government that varies greatly by location. An SGO in your area will be able to tell you the exact income limit for your family size and county.5
Step 3: Find an SGO in Your State and Apply
Once you confirm your state is participating and you meet the income rules, you must apply directly to one or more of the approved SGOs in your state. Each SGO will have its own application process and deadlines.14
Step 4: Understand the Scholarship Priority Rules
Federal law requires all SGOs to give first priority to students who received a scholarship the previous year. The second priority goes to the siblings of current scholarship recipients.3 New applicants are considered after these priority groups.
What Can You Actually Buy with the Scholarship Money?
The law defines qualified educational expenses very broadly, linking them to the rules for Coverdell Education Savings Accounts.2 This gives families incredible flexibility. The scholarship money can be used for a wide range of K-12 costs, including for public, private, and homeschooled students.5
Approved expenses include:
- Private school tuition and fees 3
- Academic tutoring 3
- Curriculum and textbooks 3
- Online learning programs and courses
- Computer equipment and internet access 3
- Fees for standardized tests like the AP exams
- Therapies and services for students with special needs 3
- School uniforms and transportation 3
Do’s and Don’ts for Families Seeking Scholarships
Navigating the application process requires careful planning. Here are some tips to help you succeed.
| Do’s | Don’ts |
| Do apply to multiple SGOs. This increases your chances of receiving an award, as each organization has its own funding levels and applicant pool. | Don’t assume you make too much money. The 300% AMGI limit is higher than many people think, especially in more expensive areas. Always check the specific number for your county.5 |
| Do gather your income documents early. You will need proof of your household income from the prior year to complete your applications. | Don’t wait until the deadline. Many SGOs award scholarships on a first-come, first-served basis after meeting priority requirements. Applying early is crucial. |
| Do check your state’s opt-in status regularly. A governor’s decision could change, or a state legislature might pass a law to opt in, so stay informed.1 | Don’t forget to renew your application. You must re-apply and re-verify your income each year to keep your scholarship and maintain priority status.3 |
| Do ask SGOs about their specific priorities. While federal law sets minimum priorities, some SGOs may have additional ones, such as focusing on certain geographic areas or student needs. | Don’t give up if you aren’t awarded a scholarship the first year. Your circumstances may change, more funding may become available, or you might have better luck with a different SGO in the next cycle. |
| Do understand what expenses are covered. Before you spend any money, make sure you know exactly what your SGO will approve for reimbursement or payment to avoid surprises. | Don’t rely on just one educational option. The scholarship gives you flexibility. Explore all your options, including tutoring for your public school student or a specialized curriculum for your homeschooler. |
The Great Debate: A Look at the Pros and Cons
This type of program is at the center of a long and heated debate about education in America. Both supporters and opponents make strong arguments about its potential impact.
| Pros of Scholarship Tax Credits | Cons of Scholarship Tax Credits |
| Empowers Parents: Proponents argue these programs give all parents, especially those with lower incomes, the freedom to choose the best educational environment for their child.11 | Diverts Funds from Public Schools: Opponents argue that by reducing tax revenue, these programs indirectly take money that would have otherwise funded public schools, which serve the vast majority of students.21 |
| Spurs Competition: The idea is that when public schools have to compete for students, they are forced to improve their own quality and performance, benefiting everyone.11 | Lacks Accountability and Invites Fraud: Because funds are managed by a decentralized network of non-profits, critics warn of a high risk for mismanagement, questionable spending, and outright fraud, as seen in some state programs.24 |
| Saves Taxpayer Money: Supporters claim that because the average scholarship is less than the per-pupil cost in a public school, the state saves money for every student who switches to a private school.11 | Benefits Wealthier Families Disproportionately: Some studies of state programs show that benefits often flow to more affluent families who can already afford private options, rather than the lowest-income students the programs are meant to help . |
| Improves Student Outcomes: Some research suggests that students in choice programs have higher high school graduation and college attendance rates.27 | No Consistent Proof of Better Academic Results: Opponents point to numerous studies showing that students using vouchers or scholarships do not consistently perform better on standardized tests, and in some cases, do worse.29 |
| Funded by Private Donations: Unlike vouchers, which use direct government appropriations, this program is funded by voluntary, private charitable giving incentivized by the tax code.2 | Subsidizes Private and Religious Schools: Critics argue these programs are “vouchers in disguise” that use the tax code to channel public funds to private and religious schools that are not held to the same public standards.21 |
Frequently Asked Questions (FAQs)
- Can I donate stocks or use a Donor-Advised Fund (DAF)?No. The law only allows cash contributions from individuals to qualify for this specific federal tax credit. Donations from DAFs or of stock are not eligible.5
- Can I choose which student gets my donation?No. Federal law strictly prohibits donors from earmarking their contributions for a specific student. Doing so would disqualify the donation for the tax credit and is against the rules for the SGO.3
- Is the scholarship money taxable income for my family?No. The law that created the program specifically states that scholarship funds received by a family are not considered taxable income and will not affect eligibility for other federal aid .
- Can my homeschooled child get a scholarship?Yes. The funds can be used for a wide range of educational expenses, including curriculum, books, online programs, and academic tutoring for homeschooled students.3
- Do I have to itemize my taxes to get this credit?No. A tax credit directly reduces the amount of tax you owe. It is not a deduction, so it benefits you whether you itemize or take the standard deduction.5
- What if I donate more than I owe in taxes?The credit is non-refundable, meaning it can only reduce your tax bill to zero. You will not get a cash refund for any credit amount that exceeds your total tax liability.7
- Can I claim this credit and a state credit for the same donation?No. The federal credit is automatically reduced by the value of any state tax credit you receive for the same contribution. You must make two separate donations to claim both.7
- Can a business or corporation donate and get this credit?No. This specific federal tax credit is only available to individual taxpayers. Corporations are not eligible to participate or receive this credit.7
- What happens if my state’s governor doesn’t opt in?Your child will not be eligible to receive a scholarship. However, you can still donate to an approved SGO in a state that has opted in and receive the full federal tax credit.2
- Is there a limit on how much scholarship money my child can receive?No. The federal law does not set a limit on the size of the scholarship an SGO can award to an eligible student. The amount is determined by the SGO.27