On June 9, 2026, a Treasury official sat down with a roomful of scholarship nonprofits, state officials and education groups and handed them the thing they had been asking for since the previous summer. Not a rule. A date.
Treasury and the IRS expect to publish proposed regulations for the Education Freedom Tax Credit (EFTC) no later than the end of September 2026, and states, scholarship organizations and taxpayers are expected to be able to rely on those proposed rules for tax year 2027.
That sentence carries more weight than it looks like it should. The credit became law on July 4, 2025, as part of the One Big Beautiful Bill Act, but the statute left much of the operating detail to Treasury. Until those details arrive, the people running scholarship organizations do not know the exact standard they will be measured against.
What Treasury Told the Room
The speaker was Kevin Salinger, deputy assistant secretary for tax policy. Treasury published his remarks and an accompanying press release on June 10, and used a single name for a program that has gone by several: the Education Freedom Tax Credit. In the tax code itself, it is section 25F. Elsewhere it has been called the federal scholarship tax credit, and it has been described under a handful of other labels.
Treasury Secretary Scott Bessent said the department is “committed to providing certainty to states, scholarship-granting organizations, taxpayers, and families alike.”
The preview covered six areas: how to measure the law’s 90% spending requirement, what it means for a scholarship organization to be “located in” a state, whether one organization can serve several states, how families would show they qualify, what audits would be required, and how the IRS would match donors to their credits.
The 90% Rule, and Why It Had Founders Stuck
The law requires that a scholarship organization spend at least 90% of its income on scholarships for students. A nonprofit that awards scholarships to K-12 students is what the statute calls a Scholarship Granting Organization (SGO).
The open question was never the percentage. It was the word “income.” Treasury expects the rules to measure the test against the organization’s total receipts, unreduced by expenses, which is the stricter of the readings that had been circulating.
There is a softer path alongside it. An organization whose activities are largely scholarship granting could instead measure income by the amount held in a segregated section 25F account, including qualified contributions and earnings on them. For an organization serving more than one state, that safe harbor must be met separately for each state’s account.
The practical translation for anyone forming a scholarship nonprofit this year is short: open the segregated account on day one. Our fuller explanation of the 90% requirement walks through why that number exists in the first place.
Why “Located In” Was Never a Technicality
Each participating state submits a list of the scholarship organizations located within it. Without a definition of “located in,” no one could say with confidence who belongs on which list.
Treasury previewed one: an organization is located in a state if it is authorized to do business there and complies with the state’s generally applicable rules for charitable organizations. States may not add requirements specific to these organizations that are more restrictive than section 25F’s own.
The multistate question got an explicit yes. One organization may appear on more than one state’s list, so long as it is located in each state and keeps a separate section 25F account for each, with most operational requirements applied account by account.
Here is why that matters to a family rather than a lawyer. In states with few established scholarship nonprofits, families would otherwise be waiting for local infrastructure to be built from scratch.
How a Family Would Show It Qualifies
Treasury previewed a layered approach to income verification rather than a single form. Families could provide direct documentation such as paystubs, tax returns, IRS transcripts or W-2s. Organizations could also use commercial data sources.
A second route is categorical: a household whose member already participates in a needs-based federal, state or tribal program would qualify on that basis. Children in foster care would be treated as income-qualified with no separate verification.
“School” would be defined consistent with section 530 of the tax code to include public, private and religious K-12 schools as determined under state law. That includes home schools in states whose law treats them as schools.
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The Piece Donors Will Actually Notice
Treasury previewed a unique donor number system. The scholarship organization would issue each donor a written acknowledgment carrying a number generated under an IRS-provided method, report the contribution to the IRS under that number, and the donor would report the same number on their federal return.
The design lets the IRS match a claimed credit to a real donor and a real organization without the donor ever handing a nonprofit a Social Security number. We covered how that verification would work in more detail.
On the compliance side, every organization would need an annual financial and programmatic audit by a qualified independent third party, furnished to each state on whose list it appears. Smaller organizations could substitute an internal-committee audit signed under penalties of perjury. Treasury also said the proposed rules would contemplate an IRS system for organization administration and reporting, built in phases.
What the Preview Did Not Settle
Treasury said the preview is subject to ongoing legal review. It intends the proposed regulations to be consistent with what it described, but nothing is law until the rule publishes.
Several questions were left for later. How the $1,700 cap (Treasury rules pending) applies to married couples filing jointly is unresolved. So is coordination with the alternative minimum tax, and the mechanics of the deadline for states to submit their lists in the 2027 startup year.
Guidance on which expenses scholarships may cover under section 530, including tutoring and special-needs services, is a separate workstream that Treasury said would follow the section 25F rules. Treasury said it “fully intend[s]” scholarships to support those services, which is a statement of intent, not yet a rule.
The Vehicle Tells You Something
A month later, a procedural document filled in a detail the June preview did not name. Treasury’s entries in the 2026 Unified Agenda, published July 3, list both section 25F items under REG-117199-25 with a timetable of interim final rule.
An interim final rule binds on publication, with public comments taken afterward. The agenda pairs it with temporary regulations whose stated purpose is to let states submit their lists of scholarship organizations in the fall of 2026, before final rules publish.
Read plainly, that sequencing suggests Treasury is working to have something enforceable in place ahead of the program’s January 2027 start rather than waiting out a full comment cycle first. As of late July, neither entry had reached the Office of Information and Regulatory Affairs for review, so the end-of-September expectation remains the public timeline and not a guarantee.
What This Changes for Donors and Families
Nothing about the sequence of the credit itself. An eligible taxpayer makes a charitable contribution to a qualified SGO first. The dollar-for-dollar federal credit, up to $1,700, is claimed later at filing against federal income tax liability.
The credit is not yet in effect. Donations under this program cannot be made before January 1, 2027, and no state has certified organizations yet, because the rules defining them are still pending.
What the regulations will change is who appears on your state’s list, what documentation a family provides to a scholarship organization, and how the paperwork reaches the IRS. If you have been waiting to understand the program before deciding anything, the fall is when the picture sharpens.
What to Watch Next
Three markers, in order. Whether the section 25F rules reach the Office of Information and Regulatory Affairs and publish by the end of September, as Treasury expects. Whether states begin submitting their lists of scholarship organizations this fall under the temporary regulations. And whether the separate guidance on eligible expenses arrives close behind.
The two open donor questions, joint filers and the alternative minimum tax, are worth tracking on their own. For a married couple, the answer to the first determines the size of the credit they may claim.
The AFC Scholarship Fund has been reading each Treasury release as it lands and translating it for donors and families rather than for tax practitioners. If you want to follow what the regulations settle when they publish, sign up for updates and we will explain the next step as it happens.
Treasury said in June 2026 that it expects to issue the section 25F proposed regulations no later than the end of September 2026, and that states, scholarship organizations and taxpayers are expected to be able to rely on them for tax year 2027. As of late July, the rules had not yet reached the Office of Information and Regulatory Affairs for review, so the timeline is an expectation rather than a settled date.
An interim final rule takes effect when it publishes, with public comments collected afterward, instead of before. Treasury's 2026 Unified Agenda lists both section 25F entries with that timetable, paired with temporary regulations meant to let states submit their lists of scholarship organizations in the fall of 2026 before final rules publish.
Treasury's preview says yes. An organization may appear on more than one state's list if it is located in each state and maintains a separate section 25F account for each state, with most operational requirements applied account by account. This remains subject to the published rule.
Treasury previewed a definition of "school" consistent with section 530 of the tax code, covering public, private and religious K-12 schools as determined under state law, including home schools in states whose law treats them as schools. Because the definition turns on state law, the answer may differ from state to state.
No. The credit is not yet in effect, and no state has certified scholarship organizations. Donations under this program cannot be made before January 1, 2027, and the credit is claimed afterward, at filing.
