A state can join a federal program before anyone knows how to sign up for it. Alabama just proved it twice in the same week.
On January 16, 2026, Gov. Kay Ivey signed Executive Order No. 742, committing Alabama to the federal Education Freedom Tax Credit (EFTC) and naming the Alabama Department of Revenue as the agency that will handle the state’s share of the work. Within days, the department published something most participating states still had not: a written list of what an organization must do to be certified to award scholarships under the program.
Six requirements. Public, specific and checkable. What the page does not include is a deadline, because Alabama, like every other participating state, is waiting on final rules from the U.S. Treasury Department before it opens applications.
Certification is Defined, But Not Yet Open
Alabama has published the standards an organization must meet to award scholarships funded by the federal credit, but no organization can apply yet.
That distinction matters more than it sounds. Knowing the bar exists lets nonprofits start building toward it. Not knowing the date means no one can cross it.
What the Education Freedom Tax Credit Actually Is
Before the certification rules make sense, the program behind them has to.
The EFTC is a federal tax credit created when the One Big Beautiful Bill Act became law on July 4, 2025. It appears in the tax code as Section 25F, which is why you will sometimes see it written that way.
Here is the sequence, and the order matters. A taxpayer makes a charitable contribution to a nonprofit that awards K-12 scholarships, formally called a Scholarship Granting Organization (SGO). Later, at tax filing, an eligible taxpayer may claim a dollar-for-dollar federal tax credit of up to $1,700.
This is a tax credit, not a deduction. A deduction lowers the income you are taxed on. A credit reduces what you owe, dollar for dollar. The gift comes first; the credit is claimed afterward, on a return.
The credit takes effect beginning January 1, 2027. Nothing about it is active before that date.
The 6 Things Alabama Says a Scholarship Organization Must Be
The revenue department’s guidance page, titled “The Education Freedom Tax Credit Program: Alabama’s Part in the Federal SGO Program,” lists six criteria. Read together, they describe an organization built for breadth rather than for a single family or school.
An organization must be a 501(c)(3) nonprofit that is not classified as a private foundation. It must award scholarships to 10 or more students attending more than one school. It must spend at least 90% of the income it receives on student scholarships.
It may not earmark or reserve contributions for specific, named students. It may fund scholarships only for students in Alabama. And it must be certified by the state before it participates.
Each of those lines does quiet work. The 90% floor limits how much of a donor’s gift can go anywhere other than scholarships. The multiple-schools test prevents an organization from functioning as a fundraising arm for one campus. The no-earmarking rule is the reason a donor cannot choose which child receives a scholarship, a point worth understanding before giving rather than after.
Federal law adds another layer on top of the state’s list. Under Section 25F, scholarships are means-tested to households earning up to 300% of area median income, which is the band that determines which students an Alabama-certified organization can ultimately serve.
The Number On the Page That Is Not Settled Yet
The state guidance lists the credit as $1,700 per year for an individual and $3,400 for married couples filing jointly.
The joint figure is not confirmed. Treasury has not ruled on whether married couples filing together may claim twice the individual amount, and the common reading of the statute is $1,700 per taxpayer regardless of filing status.
Until Treasury issues final regulations, the careful working assumption is $1,700 per taxpayer. That is not a criticism of the state’s page. It is a reminder of where the rollout actually stands: states are publishing what they know, and some of what they know is still provisional.
Anyone planning around a specific dollar amount should treat published figures as subject to change and talk with a tax professional before making assumptions about their own return.
Be the First to Know
Get notified when the Education Freedom Tax Credit launches so you don’t miss the opportunity to support K–12 students while benefiting from a federal tax credit.
Why Compliance Rules Have to Be Built In, Not Bolted On
For a nonprofit thinking about this work, the practical lesson is about timing.
A 90% scholarship floor is an accounting design decision. So is means-testing every applicant household against area median income. So is a documented policy proving no contribution was reserved for a named student.
Those are the kinds of requirements that shape an organization’s books and grant-making from the first day, not corrections made after the first audit. In several states, existing scholarship organizations have chosen to create a separate entity built for the federal credit rather than attach it to a program designed for a state tax credit.
That build-versus-retrofit choice is one of the quieter storylines of the 2026 rollout, and Alabama’s published criteria make it easier to reason through.
Where Alabama Sits On a Map That is Still Filling In
Alabama joined roughly 15 states that had made the federal election as of mid-January 2026, following earlier movers including Virginia and Alaska, both of which opted in through executive action rather than legislation.
The pattern is worth noticing. Some governors are acting by executive order. Some states are moving through their legislatures. The route differs; the destination, so far, does not.
What no state has managed yet is a certified organization, because the same pending federal guidance holds everyone in place. Alabama’s contribution is not speed. It is legibility.
What This Means If You Are a Donor Or a Parent
For an Alabama taxpayer, the practical takeaway is that the state has done its part of the groundwork, and the remaining steps belong to Treasury and to the organizations preparing to apply.
For an Alabama family, the criteria hint at how scholarships will be awarded: by an independent nonprofit, to students at more than one school, based on household income rather than on who a donor knows. No one can apply for a scholarship yet, and no organization can promise one.
For families in states that have not opted in, Alabama is a useful preview of what participation looks like in practice. A signature is the beginning of the process, not the end of it.
If you want the mechanics in plain sequence, our walkthrough of how the EFTC works, step by step covers the path from gift to filing, and our explainer on how states opt in covers what a state actually files.
What to Watch Next
Three things will move this story forward.
First, Treasury’s final regulations, which participating states say they are waiting on before setting application deadlines. Second, the first state to open certification applications, whenever the guidance lands. Third, whether Treasury addresses the married-filing-jointly question directly.
Until then, the honest description of the rollout is that the standards are becoming clear while the calendar stays open.
Where AFC Scholarship Fund Fits
The AFC Scholarship Fund has awarded K-12 scholarships to families for more than two decades, long before a federal credit existed. That experience is why we read certification rules closely: they describe the daily work of getting a scholarship into a family’s hands.
We publish explanations of this program as the rules develop, including what remains unresolved. When the credit takes effect on January 1, 2027, eligible taxpayers who wish to support scholarships will have decisions to make, and those decisions are easier when the rules are understood ahead of time.
If you want to follow how your state’s rules take shape, you can find out more and get updates as each stage of the rollout becomes official.
No. Alabama has published the certification criteria, but the state's revenue department has said it is waiting on additional guidance from the U.S. Treasury Department before setting application deadlines. Certification is authorized, not yet open.
That is unresolved. Alabama's guidance page lists $3,400 for joint filers, but Treasury has not ruled on whether the individual cap doubles for married couples filing jointly, and the prevailing reading of the statute is $1,700 per taxpayer regardless of filing status (Treasury rules pending).
Under Alabama's published criteria, no. One of the six requirements limits a state-certified organization to funding scholarships for students in Alabama.
No. Alabama's criteria prohibit earmarking or reserving contributions for specific, named students, and the federal structure follows the same principle. Scholarship decisions belong to the organization awarding them.
The Education Freedom Tax Credit takes effect beginning January 1, 2027. The law's enactment date, a state's opt-in date and the date donations become eligible are three separate things.
Federal law means-tests scholarships to households earning up to 300% of area median income. Specific application processes will be set by certified organizations once states open certification.
