Beginning January 1, 2027, eligible taxpayers may be able to receive a new federal income tax credit for supporting K–12 education.

The Education Freedom Tax Credit—also called the Federal Scholarship Tax Credit—provides a credit for qualifying cash contributions made to approved Scholarship Granting Organizations.

Here is what taxpayers should know before making a contribution.

1. KNOW THE CREDIT

• Eligible individuals may qualify for a federal tax credit of up to $1,700 per year.
• Married couples filing jointly may qualify for a combined credit of up to $3,400.

Unlike a tax deduction, which reduces the amount of income subject to tax, a tax credit generally reduces the federal income tax you owe dollar for dollar.

However, this is a nonrefundable credit. That means it may reduce your federal income tax to zero, but it will not create an additional refund beyond the tax you owe.

Under the proposed regulations, unused credit amounts may be carried forward for up to five years.

2. CHOOSE CAREFULLY

Not every education-related donation will qualify.

To be eligible, the contribution must:

• Be made in cash.
• Go to an approved Scholarship Granting Organization.
• Be connected to a state participating in the federal program.
• Meet applicable documentation and reporting requirements.

Scholarship Granting Organizations will use qualified contributions to help fund eligible K–12 education expenses. These may include:

• Private-school tuition.
• Academic tutoring.
• Special-needs services.
• Books and educational supplies.
• Computers and other qualifying equipment.
• Additional expenses related to a student’s enrollment or attendance.

Taxpayers may contribute to an eligible organization in a participating state even if they live in another state.

At the time of this writing, New York was not included on the IRS list of states that had elected to participate for 2027. However, a New York taxpayer may still be able to claim the credit by contributing to an eligible Scholarship Granting Organization in another participating state.

Always confirm an organization’s eligibility before making a contribution.

3. PLAN FOR 2027

The credit applies to qualified contributions beginning January 1, 2027. Contributions made before that date will not qualify for the new credit.

Taxpayers should also understand that many of the program’s detailed rules are currently proposed and may be clarified or changed before the program launches.

Before contributing, confirm:

• The state is participating in the program.
• The scholarship organization appears on the appropriate eligibility list.
• The contribution qualifies under the final rules.
• You receive and retain the required acknowledgement.
• You have enough federal income tax liability to benefit from a nonrefundable credit.
• Any state tax credit received for the same contribution has been considered.

Planning ahead can help prevent a well-intended donation from becoming an unexpected tax mistake.

COULD THIS CREDIT APPLY TO YOU?

The new Education Freedom Tax Credit may provide taxpayers with an opportunity to support K–12 educational scholarships while reducing their federal income tax.

But the organization, contribution and taxpayer must satisfy the program’s requirements.

IRS Help can explain the new credit and help you understand how it may fit into your 2027 tax planning.

Plan ahead. Know your options.

This article is provided for general informational purposes and should not be considered individualized tax or legal advice. Program rules and participating states may change. Consult a qualified tax professional before making tax-planning decisions.