The IRS says 27 states have elected to participate in the new Federal Scholarship Tax Credit (FSTC), the federal school-choice credit created under the One Big Beautiful Bill. The program lets taxpayers claim a credit of up to $1,700 for donations to approved scholarship organizations starting in 2027. This tax credit is also known as the Education Freedom Tax Credit.
This is the first federal tax credit of its kind, and it routes money to private K-12 scholarships through the tax code rather than through families directly. Whether a household can benefit hinges entirely on one thing: whether its state opts in. With more than half the states now signed up, the program is moving from theory toward a real 2027 rollout.
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By The Numbers
- $1,700: Maximum annual tax credit per taxpayer (double for joint filers).
- 27: States that have made an advance election to participate, as of the IRS announcement.
- 5 years: How long unused credit can be carried forward if it exceeds your tax liability.
- 300%: The share of area median income a student’s household can earn and still qualify for a scholarship.
- Jan. 1, 2027: When qualifying contributions can first be made.
There are no income limits for donors. Scholarship amounts are not capped at $1,700 and SGOs can pool donations into larger awards.
How It Works
The FSTC gives individual taxpayers a tax credit for cash contributions to Scholarship Granting Organizations (SGOs), nonprofits that must spend at least 90% of their funds on K-12 scholarships. Those scholarships can cover private school tuition, tutoring, classroom supplies, and services for students with disabilities.
The structure is a three-step pipeline: states opt in and publish a list of approved SGOs, taxpayers donate, and the SGOs award scholarships. A taxpayer can only claim the credit by giving to an SGO in a participating state.
What They’re Saying
“It’s encouraging to see that 27 states have already signed up to participate in this program that promotes and supports elementary and secondary education,” said IRS CEO Frank J. Bisignano. “We are hopeful that additional states will decide to participate.“
The 27 states that have opted in: Alabama, Alaska, Arkansas, Colorado, Florida, Georgia, Idaho, Indiana, Iowa, Louisiana, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, West Virginia, and Wyoming.
How This Connects
The College Investor has tracked this credit (also marketed as the Education Freedom Tax Credit) since the rules first emerged. State sign-ups have climbed steadily, from 23 states earlier this year to 27 now. The administration has estimated the program could generate as much as $24 billion in education funding annually if widely used.
It also remains a political flashpoint. In April, 30 Senate Democrats led by Sen. Mark Kelly (D-AZ) introduced a bill to repeal the credit before it launches. That effort faces long odds in a Republican-controlled Congress, but signals the fight over the program is far from over.
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Senate Democrats Move To Repeal Education Freedom Tax Credit Before 2027 Launch
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Editor: Colin Graves
The post IRS: More Than Half of States Have Joined the New $1,700 Federal Scholarship Tax Credit appeared first on The College Investor.
