Starting January 1, 2027, Americans will be able to do something they’ve never been able to do before: donate to a scholarship granting organization that funds K-12 scholarships and receive a dollar-for-dollar federal tax credit.
It’s called the Education Freedom Tax Credit, or EFTC. In short:
Give to a qualified Scholarship Granting Organization (SGO), like AFC Scholarship Fund, and receive a dollar-for-dollar federal tax credit: up to $1,700 for individuals, or up to $3,400 for married couples filing jointly. You give first; the credit reduces your federal tax bill when you file.
This guide covers how the credit works, who qualifies, where each state stands and what the new Treasury rules mean for donors and families.
What the Education Freedom Tax Credit Is
The Education Freedom Tax Credit (EFTC) is a federal tax credit for people who make qualified donations that fund K-12 scholarships. It became law on July 4, 2025, as part of the One Big Beautiful Bill Act, and it takes effect January 1, 2027. You may also see it called the Federal Scholarship Tax Credit, or by its place in the tax code, Section 25F.
It’s the first federal tax credit of its kind. States have run scholarship tax credits for years, but this is the first time the federal government has offered one that taxpayers across the country can use.
Two groups are at the center of it:
- Donors, who give to a qualified SGO and claim the credit on their federal return.
- Families, who apply to an SGO for scholarships that help with K-12 education costs.
The SGO sits in the middle. It receives donations, reviews family applications and awards the scholarships.
AFC Scholarship Fund is a nonprofit SGO preparing to serve donors and families when the credit goes live in 2027.
How It Works, Step by Step
Here is the order, from gift to credit:
- You give. Make a cash gift to a qualified SGO, like AFC Scholarship Fund, during the tax year.
- The SGO awards scholarships. Your gift goes into scholarships for K-12 students. The SGO decides every award. Donors can’t direct a gift to a specific child.
- You get an acknowledgment. Your SGO sends you a written acknowledgment that includes a unique donor number. Under the proposed rules, that’s due by January 31 of the following year. The number lets the IRS match your credit to your gift without the SGO ever collecting your Social Security number.
- You claim the credit when you file. Report it on your federal return for the year you gave. The credit lowers your federal tax bill dollar for dollar.
So a gift made in 2027 shows up on the 2027 return you file in early 2028. The credit doesn’t arrive automatically and it doesn’t come before the gift. You give first, and the credit comes when you file. And because it can only lower federal income tax you actually owe, how much of it you can use in a given year depends on your own tax bill (more on that below).
The Donor Math
Here is how the credit works at different giving levels.
If you file as an individual: Give $1,700 to a qualified SGO and the credit covers the full gift.
If you’re married and file jointly: Give $3,400 and the credit covers the full gift. Each spouse can claim up to $1,700, for a combined credit of up to $3,400.
If you give more: You get the same credit. The amount above the credit is treated like any other charitable contribution, subject to the usual tax rules. (The part of your gift that earns the credit can’t also be taken as a charitable deduction.)
The credit is where giving starts, not where it has to stop. Plenty of donors will give $5,000, $10,000 or far more, because every dollar above the credit still goes into scholarships for kids. A larger gift simply helps more students.
A few other details donors ask about:
- It’s a credit, not a deduction. A deduction lowers your taxable income. A credit lowers the tax you owe, dollar for dollar. You don’t need to itemize to use it. Our tax credit vs. deduction explainer walks through the difference.
- It’s nonrefundable, with a carryforward. The credit can bring your federal tax bill down to zero, but it won’t create a refund on its own. If your credit is bigger than your tax bill, you can carry the unused part forward for up to five years.
- Gifts must be cash. Gifts of stock or other property don’t earn the credit.
- State credits interact with it. If you also claim a state tax credit for the same gift, your federal credit is reduced. The proposed rules include an ordering rule meant to help donors keep the most federal credit available to them. Your tax advisor can tell you how it applies to your situation.
Every donor’s situation is different, so please consult your tax advisor for your situation before you give. Tax professionals can find more detail in our CPA reference guide.
Who the Scholarships Serve
The scholarships are for K-12 students, and they’re built to reach a lot of them. About 90% of American students qualify based on household income.
To be eligible, a student must be eligible to enroll in a public school, and the household has to fall under the credit’s income limit. That limit is set high enough that most working and middle-class families qualify.
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.
Scholarships can help with qualified K-12 expenses, including:
- Tuition and fees
- Books and supplies
- Academic tutoring
- Special needs services
Students attending public, private and religious schools can benefit. In states that treat homeschools as schools, homeschooled students can too.
SGOs also have to give priority to students who received a scholarship the year before, and to their siblings. That helps families count on support from one year to the next.
The Family Path
If you’re a parent, here’s what the process will look like:
- Make sure your state is in. Scholarships go to students in states that have opted in.
- Check your eligibility. Use our eligibility calculator to see where your household lands.
- Apply to an SGO. You’ll share basic information about your household and your student, along with proof of income. SGOs can accept documents like tax returns or pay stubs, and in some cases proof that your household takes part in a qualifying needs-based program.
- Receive an award. The SGO reviews applications and awards scholarships based on the rules and the funds available.
You don’t have to be a donor to apply, and donors don’t choose which students get scholarships.
Where Your State Stands
The EFTC is a federal tax credit, but states decide whether scholarships flow to their own students. A state takes part by having its governor (or another designated official) file an election with the IRS and then submit a list of qualified SGOs.
As of October 1, 2026, 30 states have opted in. New York’s governor has announced plans to join, and a group of states remains undecided. A handful have declined, and in two states the governor vetoed opt-in legislation.
Two things are worth knowing whichever state you live in:
- Donors anywhere can claim the credit. It’s a federal tax credit, so you can give to a qualified SGO serving a participating state even if your own state hasn’t opted in.
- Scholarships stay where the state is in. Students benefit only in states that have opted in. If your state hasn’t, your gift helps children somewhere else, not in your community.
The Rules: What Treasury Released in October
On October 1, 2026, the Treasury Department released proposed regulations for the credit, along with temporary rules covering how states opt in and certify SGOs. Donors, states and SGOs can rely on the proposed regulations for gifts made starting January 1, 2027.
Here’s what they settled for donors and families:
- Married couples filing jointly can claim up to $3,400. Each spouse can claim up to $1,700. This was one of the biggest open questions, and it’s now answered.
- Your Social Security number stays with you. SGOs give donors a unique donor number instead, and report contribution information to the IRS.
- Acknowledgments have a deadline. SGOs must send donor acknowledgments by January 31 of the year after the gift.
- State credits come first in the math. An ordering rule is designed to protect the most federal credit available to donors who also qualify for a state credit.
- SGOs are held accountable. The rules call for annual SGO reporting and audits, and lay out how organizations that don’t meet the requirements can be removed.
For families, donors, and anyone who wants to be part of the EFTC when it launches in January 2027, read our full walkthrough.
Key Dates for 2027
December 1, 2026: Public comment period on the proposed rules closes
January 1, 2027: The credit takes effect. Qualified gifts can begin. States must file their election with the IRS by this date
February 15, 2027: Participating states submit their lists of qualified SGOs
Throughout 2027: Donors give; SGOs award scholarships
January 31, 2028: SGOs send acknowledgments for 2027 gifts
2028 filing season: Donors claim the credit on their 2027 federal return
It's a federal tax credit for people who donate to a qualified Scholarship Granting Organization that funds K-12 scholarships. It became law in July 2025 and takes effect January 1, 2027.
Up to $1,700 for individuals, or up to $3,400 for married couples filing jointly. It's dollar for dollar, so it lowers your federal tax bill by the amount of the credit.
Yes. Under the proposed regulations Treasury released October 1, 2026, each spouse can claim up to $1,700, for a combined credit of up to $3,400 on a joint return.
Qualified gifts can begin January 1, 2027. You'll claim the credit on the 2027 federal return you file in 2028.
Yes. The credit stays the same, and the amount above it is treated like any other charitable contribution, subject to the usual tax rules. Larger gifts help more students.
No. It's a tax credit, not a deduction, so you can claim it whether you itemize or take the standard deduction.
You can still give and claim the federal credit by giving to a qualified SGO serving a participating state. Scholarships go to students in participating states.
K-12 students who are eligible to enroll in a public school and whose household falls under the credit's income limit. About 90% of American students qualify.
No. Federal law doesn't allow donors to direct a gift to a particular student. The SGO decides every award.
Qualified K-12 expenses, including tuition, fees, books, supplies, academic tutoring and special needs services.
