Most states joining the Education Freedom Tax Credit (EFTC) are starting from a blank page. South Dakota is not.
Since 2016, the state has run a scholarship program funded by an unusual source: insurance companies. It has a list of approved nonprofits, a state agency overseeing them and nearly a decade of paperwork behind it.
So when Gov. Larry Rhoden stood at Saint Joseph Academy in Sioux Falls on Nov. 14, 2025 and said South Dakota would take part in the new federal credit, he was not announcing the birth of something. He was adding a second lane to a road that already existed.
That difference, between building new machinery and extending old machinery, may say more about how quickly families see scholarship dollars than any speech will.
What Rhoden Committed South Dakota To
The Education Freedom Tax Credit (EFTC) is a federal tax credit for people who donate to a nonprofit that awards K-12 scholarships. The formal name for that kind of nonprofit is a Scholarship Granting Organization (SGO).
Congress created the credit in the One Big Beautiful Bill Act, which became law on July 4, 2025. In the tax code it appears as Section 25F, which is why some coverage calls it the §25F credit rather than the EFTC.
The sequence matters more than the name. A donor first makes a charitable contribution to a qualified SGO. Later, at tax filing, an eligible taxpayer may claim a dollar-for-dollar federal credit of up to $1,700.
The credit is nonrefundable. That means it can reduce a taxpayer’s federal income tax liability, but it does not produce a payment beyond what is owed.
Nothing about that process is available yet. The credit becomes claimable for contributions beginning January 2027, and states must choose to take part.
The Scholarship Program South Dakota Already Ran
In 2016, South Dakota lawmakers passed SB 159 and created the Partners in Education program, codified at SDCL Chapter 13-65. It sends contributions to scholarship granting organizations that help eligible families pay K-12 tuition.
The funding source is what makes it unusual. Insurance companies, not individual income tax filers, receive the credits, worth up to 100% of their contributions, against a statewide cap of $5 million a year. The Division of Insurance inside the South Dakota Department of Labor and Regulation administers it.
The result is a state that already knows how to approve a scholarship nonprofit, move money into it and account for the scholarships that come out.
Why the Two Credits Are Not the Same Thing
It would be easy to read South Dakota’s history and conclude the federal credit is simply an expansion of what the state already does. It isn’t.
The state program is an insurance premium tax credit. The federal program is an individual income tax credit. Different taxpayers claim them, different governments fund them and different agencies oversee them.
The federal rules also carry their own conditions. Under the statute, a participating SGO must be a 501(c)(3) public charity rather than a private foundation, and income limits apply to the families it serves.
We covered how these layers coexist in federal credit vs. state credit. The short version: a state scholarship program and the federal credit can operate side by side without one absorbing the other.
What a Head Start Actually Buys
For the nonprofits already working in South Dakota, the advantage is practical. They have donor intake systems, application processes, award committees and audit habits. Adding a federal channel is an extension of existing work rather than a founding.
Be the First to Know
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Compare that to a state where no scholarship organization exists yet. There, someone has to incorporate a nonprofit, secure 501(c)(3) status, recruit a board, write eligibility rules and build a way to verify household income before a single scholarship is awarded.
The catch is that a head start is not a finish line. The federal side has its own certification questions, and as of publication no state has completed the full process of certifying SGOs for the federal credit. We explained why no state has certified SGOs yet.
Public coverage of Rhoden’s announcement also did not specify the exact route South Dakota would take, whether through a formal election filed with the IRS or through state legislation. That procedural detail is unresolved in the record we can verify, and we would rather say so than guess.
Where South Dakota Sits on the National Map
On June 8, 2026, the IRS published a news release, IR-2026-76, listing the states signed up to participate and confirming a credit of up to $1,700 per taxpayer. More than half the states appeared on it. South Dakota was among them.
That list is the difference between an announcement and a status. A governor’s commitment signals intent. The federal roster records participation.
South Dakota now sits in a group that has grown steadily since the law passed, from Virginia’s early move to opt-ins in Florida and Colorado. What separates South Dakota is not speed. It is the existing scholarship channel underneath the decision.
Readers who want the mechanics of how a state joins can find them in how states opt in.
What This Means If You Live in South Dakota
For a donor, the practical answer is that participation is a prerequisite, not a start date. Contributions do not become credit-eligible until qualified SGOs are in place to receive them and Treasury issues final rules.
For a family, the question is narrower and more immediate: which organizations in the state will award federally funded scholarships, and what income limits will apply. Those answers depend on decisions still being made.
Here’s why the state’s existing infrastructure matters to both groups. Where scholarship organizations already exist, the gap between a state saying yes and a family receiving an award is likely to be shorter. Likely is not certain, and no one should treat an approval under the state insurance credit as approval under the federal credit.
What to Watch Before January 2027
Three things will shape what South Dakota families actually receive.
First, final Treasury regulations, which will settle donation documentation, SGO obligations and how the credit interacts with other tax benefits. Second, whether South Dakota’s established scholarship organizations move to add the federal channel. Third, how many donors in the state commit before the first claimable year begins.
None of those is decided. That is the honest state of the story, in South Dakota and in every other participating state.
Where the AFC Scholarship Fund Fits
We are preparing to serve donors and families in participating states when the credit becomes available in 2027. Until then, our job is education.
If you want to follow what happens next in South Dakota, or in your own state, you can see how the credit works step by step and sign up to find out more as Treasury guidance and state decisions arrive.
No one should have to guess at how a tax credit works. Learn the mechanics first. Decide later.
Gov. Larry Rhoden announced on Nov. 14, 2025 that South Dakota would participate, and the state appeared on the IRS list of participating states published June 8, 2026 in IR-2026-76. Public coverage of the announcement did not specify whether the state acted by federal election or by legislation.
No. Partners in Education, created by SB 159 in 2016, is an insurance premium tax credit claimed by insurance companies, capped at $5 million statewide each year and administered by the South Dakota Division of Insurance. The federal credit is a separate, nonrefundable individual income tax credit under Section 25F.
Not yet. The federal credit applies to contributions beginning in 2027, and it depends on qualified SGOs being in place and on final Treasury regulations, which are pending as of publication.
No. Approval under the state insurance premium credit is a separate matter from qualifying under federal rules, which require an organization to be a 501(c)(3) public charity rather than a private foundation and to serve families within applicable income limits.
The federal credit does not function until qualified organizations exist to receive contributions and award scholarships. States with established scholarship nonprofits may have less to build, though timing still depends on federal guidance and state action.
