Ohio is one of the few states that was already running a scholarship tax credit before Congress created a federal one. That head start comes with a wrinkle donors in every state with a similar program will eventually need to understand: the two credits coordinate, but they do not simply add up.
A Program That Was Already Running
In most states, the offices that will handle the federal scholarship tax credit have never handled anything like it. In Ohio, one office has been doing a version of the job since 2021.
That office is the Ohio attorney general’s Charitable Law Section, which certifies the nonprofits that award private-school scholarships and publishes the official list of them. The formal term for those nonprofits is Scholarship Granting Organization (SGO).
Here is the wrinkle that matters most to Ohio donors, stated plainly: the new federal credit of up to $1,700 does not stack on top of Ohio’s existing $750 or $1,500 state credit on the same gift.
Claiming the state credit on a contribution reduces the federal credit available on that same contribution, dollar for dollar. The reason has less to do with Ohio than with how the federal statute was written.
What Ohio Law Already Offers Donors
Under Ohio Revised Code 5747.73, an Ohio taxpayer who gives cash to a certified SGO may claim a dollar-for-dollar credit against state income tax. The cap is $750 for a single filer and $1,500 for a married couple filing jointly. See Ohio Revised Code 5747.73.
The credit is nonrefundable, meaning it can reduce state income tax owed but does not produce a payment beyond that. Ohio launched the program in 2021.
What makes Ohio unusual is not the program itself. Several states run tax-credit scholarship programs. It is where the certification authority sits.
In most states, that function lives in the department of revenue or the department of education. In Ohio, it lives with the attorney general, an office whose Charitable Law Section already oversees charitable solicitation and nonprofit compliance. That institutional home persists regardless of who holds the office.
How the Federal Credit Enters the Picture
The federal program has several names in circulation. It was created as Section 25F of the tax code, appears in some federal materials as the federal scholarship tax credit, and is widely known as the Education Freedom Tax Credit (EFTC). It became law on July 4, 2025, as part of the One Big Beautiful Bill Act.
The sequence matters. A donor first makes a charitable contribution to a qualified SGO. The dollar-for-dollar federal credit, up to $1,700, is claimed later, when the donor files a federal return.
Donations that may qualify for the federal credit cannot be made before January 1, 2027. Nothing about the federal program is active as of this publication.
Two other conditions apply. A state must file an advance election with the IRS to participate. And federal law limits scholarships funded through the credit to students in households below 300% of area median income.
Why “Coordinates” Is the Right Word, and “Stacks” Is Not
The federal statute anticipates that some donors live in states with their own scholarship credits. It addresses that overlap directly rather than leaving it open.
If a taxpayer claims a state credit on a qualifying SGO contribution, the federal credit on those same dollars is reduced by the amount of the state credit. The same dollars also cannot be claimed as a charitable deduction under Section 170.
In practical terms, an Ohio couple who claims the full $1,500 state credit on a single gift would see the federal credit available on that gift reduced accordingly. This is not a penalty. It is the statute preventing the same dollar from being counted twice.
Some donors may consider making separate contributions so that one gift supports a state claim and another supports a federal claim. Whether that approach works, and how records must be kept, depends on final Treasury regulations that have not been published as of publication.
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.
Anyone weighing it should talk with a tax professional rather than rely on general guidance.
Two Rulebooks, Not One
Certification is the second place Ohio’s head start creates complexity. An organization certified by the Ohio attorney general under state law is not automatically a qualified SGO for federal purposes.
The eligibility tests differ too. Ohio’s statute does not impose the federal 300%-of-area-median-income ceiling in the same terms, which means a scholarship that satisfies Ohio’s program may not satisfy the federal income test.
So an Ohio scholarship organization that wants to serve donors under both programs will be tracking two overlapping but non-identical sets of requirements: which credit each donor claims, which students meet which income standard, and how the charitable deduction interacts with both.
That is administrative work, not a legal obstacle. But it is real, and it is one reason no state has yet certified SGOs for federal purposes.
Why This Extends Well Beyond Ohio
Ohio is a preview of a question that will reach every state with an existing scholarship credit. Arizona, Florida, Georgia, Indiana, Pennsylvania and others have run their own versions for years, some for two decades.
The national conversation so far has focused on whether states will opt in at all. The quieter question is what happens next in states that were already doing something similar.
Donor behavior is where the coordination rule will show up first. A donor choosing between a state credit capped at $750 and a federal credit capped at $1,700 is making an arithmetic decision, and the answer will differ by household.
The direction of the trend is worth noting. Before 2025, state scholarship credits operated independently of one another and of federal tax law. After 2027, they will operate alongside a federal credit that explicitly accounts for them.
What This Means If You Live in Ohio
If you are an Ohio taxpayer who has been claiming the state SGO credit, nothing about your 2026 filing changes. The state program continues to operate under its own rules.
What changes is the range of options starting in 2027, if Ohio completes federal participation and the organizations you support are federally qualified. Neither is settled today.
If you are a parent, the practical question is narrower: whether your household falls below 300% of area median income in your area, and whether a qualified organization in Ohio is awarding scholarships your child could apply for.
And if you help run a scholarship organization, the work ahead is documentation. Verifying income eligibility under the federal standard, recording which credit each donor claims and keeping the deduction interaction straight are all now part of the job.
Where AFC Scholarship Fund Fits
We are preparing to serve donors and families in participating states when the federal credit takes effect on January 1, 2027. Between now and then, our aim is to explain what the law says, flag what remains unsettled and keep the two clearly separated.
You can read how the Education Freedom Tax Credit works step by step or find out where your state stands. No donation is possible yet, and we will say so until it is.
What to watch next: Treasury’s final regulations, whether Ohio files its federal election, and how the attorney general’s certification process adapts to a second rulebook. The story is not finished.
Not in full. Under the federal statute, claiming a state credit on a qualifying SGO contribution reduces the federal credit on those same dollars by the amount of the state credit, and the same dollars cannot also be claimed as a charitable deduction. Final Treasury regulations addressing the details had not been published as of this publication.
The Ohio attorney general's Charitable Law Section certifies SGOs under state law and publishes the official certified-organization list. That is unusual; in most states the function sits with the department of revenue or education.
No. State certification and federal qualification are separate. Federal law also limits scholarships to students in households below 300% of area median income, a test Ohio's own statute does not impose in the same terms.
Not before January 1, 2027. The law took effect July 4, 2025, but the credit itself applies to qualifying contributions beginning in 2027, claimed on a later federal return.
State participation requires filing an advance election with the IRS. Readers should confirm current status through official state and IRS sources rather than rely on any single article, since the roster changes.
