President Donald Trump signed the One Big Beautiful Bill Act into law on July 4, 2025, creating a new federal tax credit that can help families access an education that works for their child. Known as the Education Freedom Tax Credit (EFTC), the federal tax credit is available to eligible donors who contribute to Scholarship Granting Organizations (SGOs). Money can be used for tuition as well as expenses like books, supplies, academic tutoring and special needs services.
Here’s how the EFTC came to be, how it works, and what donors and families need to know as the credit takes effect in 2027.
What is the ‘One Big Beautiful Bill’ and What Does It Mean for K-12 Education?
The One Big Beautiful Bill Act, often shortened to the “Big Beautiful Bill,” is the official short title of a federal budget reconciliation law passed by Congress in the summer of 2025. Reconciliation is a special budget process. It lets Congress pass legislation dealing with taxes, spending and the federal debt with a simple majority in the Senate, rather than the 60 votes most bills need.
Because reconciliation bills must deal with the budget, they tend to be large and cover a lot of ground. This one ran to hundreds of pages and touched everything from tax brackets to farm programs. Most headlines focused on those big-ticket items.
But one section, now known as Section 25F of the tax code, created something that had never existed before: a federal tax credit that encourages Americans to fund K-12 scholarships.
Where the Idea for the EFTC Came From
The Education Freedom Tax Credit grew out of a model that states have used for decades: scholarship tax credits.
More than 20 states offer some form of scholarship tax credits. In most cases, a taxpayer donates to a nonprofit Scholarship Granting Organization (SGO) and receives a state tax credit. The SGO uses those contributions to provide scholarships to eligible students. The specific rules, including who can receive a credit, how much the credit is worth and which students qualify for scholarships, vary by state.
Supporters had pushed for a national version for years, most notably through a proposal called the Educational Choice for Children Act, which was introduced in several sessions of Congress but never passed as a standalone bill.
How Section 25F Moved Through Congress
The school choice provision changed shape as the bill moved.
- May 2025: The House passed its version of the budget bill, which included a scholarship tax credit with a national cap on total credits and an expiration date.
- June 2025: The Senate reworked the provision. The final design set the credit at up to $1,700 per taxpayer, made it permanent with no national cap, and gave each state the choice to participate.
- July 1, 2025: The Senate passed its version of the bill.
- July 3, 2025: The House passed the Senate version.
- July 4, 2025: The One Big Beautiful Bill Act was signed into law.
The Senate’s changes matter more than they might seem. A permanent credit gives families and schools something to plan around. Letting states opt in keeps decisions about education close to home. And removing the national cap means every eligible donor can take part, not just the first ones to give.
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.
How the EFTC Works
For most taxpayers, federal taxes feel like a one-way street. The EFTC changes that. Here’s how it works:
- You give first. Make a charitable contribution to a qualified SGO, such as AFC Scholarship Fund.
- Your gift generates a credit. That contribution earns a dollar-for-dollar federal tax credit for eligible donors.
- The credit comes back when you file. It reduces what you owe the IRS, dollar for dollar.
It’s a tax credit, not a deduction, so you don’t need to itemize. Students, in turn, receive scholarships to attend the school that fits them.
Why the EFTC Is Different From a Voucher
You’ll sometimes see the EFTC lumped in with vouchers. It isn’t one.
A voucher uses government money set aside for education to pay for a child’s schooling. The EFTC doesn’t create a new government education program or spend a new appropriation. Instead, it relies on voluntary gifts from individuals to private nonprofit SGOs. Donors choose whether to give. Families choose whether to apply. Parents choose the school that fits their child.
What It Means for You Heading Into 2027
The law is on the books. Treasury has now released guidance on how the credit will work, 31 states plan to participate, and the first gifts can be made on Jan. 1, 2027.
For donors: You don’t need to wait until January to plan. Learn how the credit works, talk with your tax advisor and decide how much you’d like to give.
For families: If your household income falls within the limit, your child may qualify for a scholarship that helps cover tuition, fees, books, supplies, academic tutoring and special needs services.
For schools and partners: 2027 will be the first year families nationwide can receive scholarships funded through the federal tax credit. Now is the time to get ready.
The One Big Beautiful Bill Act, a federal budget reconciliation law signed on July 4, 2025, created the EFTC. It added Section 25F to the Internal Revenue Code.
Yes. The EFTC is one provision inside the One Big Beautiful Bill Act. You may also see it called the federal scholarship tax credit or Section 25F.
The credit takes effect Jan. 1, 2027. Qualifying gifts made in 2027 can be claimed on your 2027 federal tax return.
You give first. Eligible donors receive a dollar-for-dollar federal tax credit, up to $1,700 for individuals or up to $3,400 for married couples filing jointly, that comes back when you file. You’re welcome to give more than the credit covers; the amount above the credit is treated like any other charitable contribution, subject to the usual tax rules.
No. The EFTC is a tax credit, not a deduction, so you don’t need to itemize.
Governors decide whether their state participates and designate the SGOs that serve students there. Scholarships reach students in states that opt in. Donors can give to an SGO in a participating state and claim the federal credit, regardless of where they live.
K-12 students who are eligible to attend public school and whose household income is at or below 300% of their area median gross income. That includes approximately 90% of K-12 students.
No. The EFTC is funded by voluntary private donations to nonprofit SGOs, not by a new government appropriation.
