Big Beautiful Bill School Choice: What the Federal Scholarship Tax Credit Means for Donors

What the Big Beautiful Bill Did for School Choice

Eligible donors can give to a scholarship granting organization (SGO) and claim a dollar-for-dollar credit on their federal return, starting with gifts made on or after January 1, 2027. The One Big Beautiful Bill Act, signed on July 4, 2025, created the first federal tax credit tied to K-12 scholarship giving. You will see it called the federal scholarship tax credit (FSTC), the Education Freedom Tax Credit (EFTC), and Section 25F of the tax code. All three names point to the same program.

Before this law, school choice funding was handled almost entirely by the states. Some states have run scholarship tax credit programs for years, but there was nothing at the federal level. This credit gives donors a federal way to support scholarships, as long as the gift goes through an approved organization.

How Much Can Donors Claim?

The credit has clear limits:

• Up to $1,700 for an individual filer
• Up to $3,400 for married couples filing jointly
• Applied dollar for dollar against the federal income tax you owe
• Nonrefundable, so it can reduce your tax to zero but not create a refund
• Unused credit carries forward for 5 years

• $1,700Cap for an individual filer
• $3,400Cap for married couples filing jointly
• 5 yearsUnused credit carries forward

Here is a simple example. A single filer who owes $6,000 in federal income tax gives $1,700 to an SGO. The credit reduces the tax bill to $4,300, before any other credits. If that same filer owed only $1,000, the credit would wipe out the bill, and the remaining $700 could carry forward to future tax years.

Who Can Claim the Credit?

The credit is built for individual taxpayers who owe federal income tax. If you file as a single filer, head of household, or married couple, you can give up to your limit and apply the credit to your return. Because it is nonrefundable, it helps most when you have a tax bill large enough to absorb it. If your bill is smaller than your gift, the carryforward lets you use the rest in later years, so the credit is not lost.

Why a Credit Beats a Deduction

A deduction lowers the income you are taxed on. A credit lowers the tax itself. For a donor in the 24 percent bracket, a $1,700 deduction saves about $408. A $1,700 credit saves the full $1,700.

One rule matters here. You cannot claim the credit and also deduct the same gift. You can claim the credit for the amount you give toward it, and a tax professional can help you decide how it fits with your other charitable giving.

Rules to Know Before You Give

The credit comes with a few requirements that are easy to miss:

• Cash only. Gifts of digital assets do not count.
• Qualified SGOs only. Your gift has to go to an organization on the IRS list of qualifying SGOs.
• No earmarking. You cannot direct your gift to a specific student.
• A donor number. The SGO gives you a unique donor number by January 31 of the following year, and you use it when you file.
• State credits can overlap. If a state credit applies to the same gift, it reduces the federal credit you can claim.
• Start date. Only gifts made on or after January 1, 2027 qualify.

What It Means for Students and Schools

Every dollar given to an SGO goes toward scholarships for K-12 students, so the credit gives families more options for choosing a school that fits their child. Scholarship funds can include general funds, special education funds, and faith-based education funds, which lets you support the kind of education you care about most.

Where States Fit In

States decide whether to take part. They have until January 1, 2027 to opt in, and then they submit their lists of approved SGOs by February 15, 2027. Whether your state opts in shapes where scholarships can go, so it is worth checking the current IRS list before you give. Our interactive state map shows which states are participating.

What Happens Next

The Treasury Department issued proposed regulations on October 1, 2026, and a public hearing is scheduled for December 15, 2026. Details can still change before the rules are final, so plan around the main points now and confirm specifics once guidance settles.

A few steps help you get ready:

1. Estimate your 2027 federal tax liability so you know how much credit you can use.
2. Decide how much you want to give, up to your limit.
3. Review the SGOs and scholarship funds that interest you once they are listed.
4. Keep your donor number and receipt when the SGO sends them.

Quick Answers

Is the federal scholarship tax credit refundable?

No. It can bring your federal income tax to zero, but it will not create a refund. Any unused amount carries forward for 5 years.

Can I give before 2027 and claim the credit?

No. Gifts qualify beginning January 1, 2027.

Is this the same as the Education Freedom Tax Credit?

Yes. The federal scholarship tax credit and the Education Freedom Tax Credit are two names for the same credit.

Get Ready to Give

Big beautiful bill school choice is moving from headline to real giving in 2027. If you want to support scholarships and lower your federal tax bill in the process, now is the time to learn how the credit works. Get notified when giving opens, and we will send the key dates and steps straight to you.

This article is general information, not tax advice. Check with a tax professional about your situation.

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