Federal Scholarship Tax Credit 2027: IRC §25F Guide
Beginning next year, a new line item joins the individual return: the Federal Scholarship Tax Credit, a nonrefundable credit of up to $1,700 for cash contributions to state-approved Scholarship Granting Organizations. The IRS confirmed the 2027 launch and released the first list of participating states in IR-2026-76, and Treasury’s One, Big, Beautiful Bill Provisions page provides the underlying statutory framework in new Internal Revenue Code Section 25F.
At SW Accounting & Consulting Corp, our Los Angeles clients — parents, retirees who give annually, and business owners looking for tax-smart giving — are already asking whether this credit fits their 2027 plan. The short answer is: probably yes, if you live in a participating state, and the planning starts now. Here is what the credit actually does, who qualifies, and the practical steps taxpayers should take before the first eligible donation is made.
What is the Federal Scholarship Tax Credit? 📘
The Federal Scholarship Tax Credit is a new IRC §25F federal credit of up to $1,700 per individual taxpayer for qualifying cash contributions to Scholarship Granting Organizations that fund K–12 education.
Congress created the credit in the One Big Beautiful Bill Act, P.L. 119-21, which added Section 25F to the Internal Revenue Code. The credit is available beginning with tax years starting after December 31, 2026, meaning the first eligible donations are those made on or after January 1, 2027 in a participating state. According to the IRS, the credit reimburses individual taxpayers, not corporations, for cash contributions to Scholarship Granting Organizations (SGOs) — nonprofits that use those contributions to fund scholarships for qualified elementary and secondary education expenses.
Three pieces have to line up for a donor to claim the credit: an individual taxpayer, a cash contribution, and an SGO located in a state that has affirmatively elected to participate in the FSTC program. If any one is missing, no credit is allowed.
Which states have elected to participate in the FSTC? 🗺️
As of June 22, 2026, twenty-eight states have made an advance election under Section 25F for the 2027 program year, and the IRS will update its official list as more states file.
State participation is voluntary. A state (or the District of Columbia) must file an advance election with the IRS and provide a list of qualified SGOs in that state before any donor can claim the credit for a contribution to an SGO located there. In IR-2026-76, the IRS listed the initial states that had opted in. The official Advance Elections page now reflects the participating states for 2027:
- Alabama, Alaska, Arkansas, Colorado, Florida, Georgia, Idaho, Indiana, Iowa
- Louisiana, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire
- North Carolina, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota
- Tennessee, Texas, Utah, Virginia, West Virginia, Wyoming
Notably absent from the first wave are several of the largest tax-paying states — including California, New York, Illinois, New Jersey, Washington, and Massachusetts. Donors in those states cannot claim the federal credit for contributions to SGOs located there under Section 25F until (and unless) their state affirmatively elects to participate. Because the election is annual, the composition of the list can change year to year.
How much is the Federal Scholarship Tax Credit worth? 💵
The credit is capped at $1,700 per individual taxpayer per year — a dollar-for-dollar reduction of federal income tax, not a deduction.
A credit is worth substantially more than a deduction of the same size. A $1,700 deduction in the 24% federal bracket saves roughly $408 in tax; a $1,700 credit removes the full $1,700 from the tax owed. Because the credit is nonrefundable, it can bring a taxpayer’s federal liability to zero but cannot generate a refund on its own, and married-filing-jointly couples where both spouses contribute would need to review the statutory per-taxpayer language closely as regulations develop.
There is one important interaction to keep in mind: the same dollar cannot be claimed as both a federal charitable deduction and a Federal Scholarship Tax Credit, and many participating states also run their own state scholarship-credit programs. Coordinating the federal claim with any state credit or state deduction is where CPA planning matters — done properly, it can convert a routine charitable gift into a materially larger after-tax benefit.
What counts as a qualified SGO, and what can the scholarships pay for? 🎒
A qualified SGO is a scholarship-granting nonprofit that a participating state has certified and submitted to the IRS; the scholarships must fund qualified elementary and secondary education expenses.
To qualify a donation for the credit, three requirements must hold at the time of the contribution:
- The SGO is on the participating state’s official list submitted to the IRS. Contributions to a scholarship charity that has not been certified do not qualify — even if the charity does similar work.
- The contribution is cash. Section 25F, by its terms, covers cash contributions. In-kind gifts, appreciated securities, and services do not fall within the credit as written.
- The scholarships fund qualified K-12 education expenses. The credit is designed for elementary and secondary education support — tuition, fees, and related qualifying expenses — not for post-secondary or professional education.
What should taxpayers do to prepare for the 2027 Federal Scholarship Tax Credit? ✅
Confirm your state’s participation, identify a certified SGO, plan the timing of the donation, and coordinate with your other tax positions.
Concrete steps for taxpayers considering a Section 25F contribution in the 2027 program year:
- Verify state participation. Use the IRS Advance Elections page. Because the list updates as states file, re-check just before donating.
- Identify a certified SGO. Ask the SGO directly whether it has been included on the state’s official list submitted to the IRS, and keep the acknowledgment letter with your tax records.
- Plan the donation year. The credit begins for tax years beginning after December 31, 2026 — a contribution made on December 31, 2026 does not qualify, but the same contribution made a day later does.
- Coordinate with other tax positions. Do not double-claim the same dollars as a federal charitable deduction and as a Section 25F credit. If your state offers a parallel credit, understand how the two interact.
- Watch for guidance. The IRS is expected to release additional guidance on SGO certification, recordkeeping, and interaction rules. Anchor your plan to the IRS pages, not to secondary summaries.
Federal Scholarship Tax Credit at a glance 📊
| Feature | Detail |
|---|---|
| Statute | Internal Revenue Code Section 25F (added by P.L. 119-21) |
| Effective | Tax years beginning after December 31, 2026 (donations from Jan 1, 2027) |
| Maximum credit | Up to $1,700 per individual taxpayer, per year |
| Type | Nonrefundable federal income tax credit |
| Contribution | Cash only — to an SGO on a participating state’s IRS-submitted list |
| Purpose | Scholarships for qualified elementary & secondary (K-12) expenses |
| Participating states (2027) | 28 as of June 22, 2026 (list updated by the IRS) |
📌 Key Takeaways
- The Federal Scholarship Tax Credit begins January 1, 2027 — new IRC §25F, worth up to $1,700.
- Only individual taxpayers making cash gifts to certified SGOs in participating states qualify.
- 28 states have elected in for 2027; California, New York, Illinois, and several others have not.
- A donor in a non-participating state may contribute to an SGO in a participating state to claim the credit.
- Never double-claim the same dollars as a charitable deduction and a §25F credit.
Frequently Asked Questions ❓
Q. When does the Federal Scholarship Tax Credit start?
The credit is available for tax years beginning after December 31, 2026, meaning eligible cash donations must be made on or after January 1, 2027 to a Scholarship Granting Organization in a state that has affirmatively elected to participate under IRC §25F.
Q. How much is the credit worth?
Up to $1,700 per individual taxpayer per year. It is a nonrefundable federal income tax credit, which is dollar-for-dollar more valuable than a deduction of the same amount — but it cannot generate a refund on its own.
Q. Does California participate in the Federal Scholarship Tax Credit?
Not for the 2027 program year based on the IRS Advance Elections list published as of June 22, 2026. California residents can, however, contribute to an SGO located in a participating state and claim the credit if the SGO is on that state’s official list.
Q. Can I claim both the Section 25F credit and a charitable deduction for the same gift?
No. The same dollar cannot be used to claim both a federal charitable deduction and a Federal Scholarship Tax Credit. Careful coordination with a CPA avoids inadvertent double-benefit that would be disallowed on audit.
Q. Do contributions of stock or in-kind property qualify?
No. Section 25F, by its terms, covers cash contributions. Gifts of appreciated securities, in-kind property, or services do not qualify for the Federal Scholarship Tax Credit as the statute is written.
Q. Can businesses claim the Federal Scholarship Tax Credit?
No. IRC §25F is a credit for individual taxpayers. Corporations and other business entities are not eligible for the FSTC under the statute; separate state scholarship-credit programs may apply.
Q. Where can I confirm the current list of participating states and SGOs?
The IRS maintains the official list on its Advance Elections page under One Big Beautiful Bill Provisions. Because states file on a rolling basis, verify the state — and the SGO’s inclusion on the state’s IRS-submitted list — immediately before donating.
Planning a 2027 contribution or want to fold the Federal Scholarship Tax Credit into a broader charitable-giving strategy for your Los Angeles family or business? Contact SW Accounting & Consulting Corp for a coordinated review. Primary sources: IRS release IR-2026-76, the IRS One, Big, Beautiful Bill Provisions page, and the underlying statute P.L. 119-21.
