Education Freedom Tax Credit vs. Deduction

The Short Answer

A deduction lowers the income you are taxed on. A credit lowers your tax bill itself, dollar for dollar. The Education Freedom Tax Credit, also called the Federal Scholarship Tax Credit (FSTC), is a credit, so you do not need to itemize to claim it.

• Up to $1,700per individual
• Up to $3,400married filing jointly
• Dollar for dollarlowers your tax
• No itemizingrequired to claim it

Sources: IRS IR-2026-117 (opens in a new tab), Treasury EFTC FAQ (opens in a new tab)

Tax Credit vs. Deduction at a Glance

Both can reduce your federal tax. They work differently.

• How does a deduction work?

  A deduction lowers your taxable income. Your savings depend on your tax bracket, and you generally need to itemize to claim it.

• How do tax credits work?

  A credit comes straight off your tax bill, dollar for dollar, up to $1,700 per person or $3,400 for married couples filing jointly.

• A quick example

  In the 24% bracket, a $1,000 deduction lowers your tax by about $240. A $1,000 credit lowers it by $1,000, up to the tax you owe.

Can You Claim Both?

No. A gift claimed for the federal credit cannot also be deducted as a charitable contribution. Ask a tax professional how this applies to your return.

What if I give more than the cap?

The credit is capped at $1,700 per individual and $3,400 for married couples filing jointly. Ask a tax professional how any amount above the cap is treated.

What if my state also has a credit?

A state tax credit for the same gift reduces the amount eligible for the federal credit.

Estimate Your Credit

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Who Benefits Most from the Credit?

The credit works best when you owe federal tax. Here is how it plays out.

• You itemize

  You can still claim the credit. It comes straight off your tax bill.

• You take the standard deduction

  You can claim the credit without itemizing, which a charitable deduction would not allow.

• You owe little tax

  The credit cannot exceed your federal tax, but unused credit carries forward up to five years.

• You are married filing jointly

  You can claim up to $3,400, which is $1,700 per spouse under the proposed rules.

Which States Are Participating?

The IRS lists 30 participating states as of September 14, 2026. You can give to an SGO in any participating state, no matter where you live.

Source: IRS, participating states for 2027, as of Sept 14, 2026.

My state isn't on the list

You can still give to an SGO in a participating state and claim the federal credit. Scholarships go to students in states where the SGO is listed.

Common Mistakes to Avoid

Four things to get right before you claim.

• Claiming a credit and a deduction for the same gift

  A gift claimed for the credit cannot also be deducted.

• Expecting a refund

  The credit is nonrefundable. It cannot exceed your federal tax.

• Ignoring your state credit

  A state credit for the same gift reduces the federal credit.

• Skipping your acknowledgement

  You need your donor number to claim the credit. Save it with your tax records.

Donor Resource Catalog

Official sources, tools and guides in one place, so you can understand the credit before you give.

Official sources

• IRS: Federal Scholarship Tax Credit and participating states (opens in a new tab)
• IRS news release IR-2026-117 (opens in a new tab)
• Treasury press release (opens in a new tab)
• Treasury and Education Department FAQ (PDF) (opens in a new tab)
• Proposed regulations (Federal Register) (opens in a new tab)
• Temporary regulations for states and SGOs (opens in a new tab)

Tools

• Credit calculator

Guides

• How to give and claim the Education Freedom Tax Credit
• Federal Scholarship Tax Credit: the full donor guide
• Charitable giving tax strategies for 2027
• What is a nonrefundable tax credit?
• Big Beautiful Bill school choice: what the credit means for donors

State pages and donor pages are coming soon and will be linked here as they go live.