Treasury and the IRS have not finalized the substantive rules for the new federal school-choice tax credit. On October 1, 2026, they issued proposed regulations for the credit and separate temporary regulations for state and scholarship-organization procedures. The credit is designed for eligible individuals who contribute to qualifying scholarship-granting organizations (SGOs), not as a direct federal tuition credit for families.
How the federal school-choice tax credit works
Section 25F of the Internal Revenue Code, enacted in 2025 as part of Public Law 119-21, creates a nonrefundable federal credit for an eligible individual’s qualified contribution to a qualifying SGO. A nonrefundable credit can reduce tax owed, but it cannot by itself produce a refund beyond the taxpayer’s liability.
The IRS says that for 2027 an individual may be able to claim a credit of up to $1,700 for certain cash contributions. That is a maximum, not a guarantee that every donation qualifies or that every taxpayer can use the full amount. The rules apply to taxable years ending after December 31, 2026, and Treasury describes January 1, 2027, as the start for qualifying contributions. See the IRS program guidance.
The contribution-credit mechanism is distinct from a family claiming a federal credit for tuition paid directly to a school: the taxpayer contributes to an eligible SGO, which administers scholarships under the rules.
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What Treasury and the IRS announced
The October 1 announcement covers two related but legally distinct actions. The substantive section 25F rules are proposed and remain open to comment; the temporary regulations address specified administrative procedures for state elections and SGO reporting and recordkeeping.
| Action | What it covers | Status and timing |
|---|---|---|
| Proposed regulations, REG-117199-25 | Substantive requirements relating to qualifying contributions, SGO eligibility, state participation, and scholarship administration. | A notice of proposed rulemaking and public hearing, not a final regulation. The Federal Register schedules a hearing for December 15, 2026, and says comments will be considered before final regulations issue. Federal Register notice |
| Temporary regulations, TD 10057 | Administrative and procedural requirements for state participation and SGO reporting and recordkeeping. | Effective December 1, 2026. They are separate from the proposed substantive rules. Federal Register document |
The Treasury/IRS document explains that comments will be considered before final regulations are issued. The substantive requirements may therefore change after the comment process; readers should not treat the proposed framework as settled final guidance.
Does a state have to participate?
Yes. Participation is voluntary: a state, or the District of Columbia, must elect to participate and provide an SGO list to the IRS. A taxpayer’s state of residence alone does not establish that a particular donation qualifies. The SGO must meet federal conditions and be included on a participating jurisdiction’s relevant list.
A state tax-credit designation for an education donation does not, by itself, make the organization or contribution eligible for the federal section 25F credit. Check the current IRS guidance and applicable state list before contributing on the assumption that the federal credit will apply.
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The IRS list page was marked “as of September 14, 2026.” At that date, it named Alabama, Alaska, Arkansas, Colorado, Florida, Georgia, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, North Dakota, North Carolina, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, West Virginia, and Wyoming.
This is a dated snapshot, not a guarantee of the current participation list. State elections and SGO listings are operational details that can change; consult the IRS state-list page for the latest information rather than relying on the September 14 list alone.
What expenses may scholarships cover?
Treasury says the proposed framework would allow scholarships for a broad range of K–12 education expenses, including private-school tuition, academic tutoring, special-needs services, books, supplies, computers and other equipment, and other qualifying expenses connected with enrollment or attendance. This is a description of the proposed rules; the final regulations may refine or change the details. See Treasury’s October 1 announcement.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.What Treasury predicts—and what those figures mean
Treasury and the IRS project that by 2030 the program could involve 600 to 700 SGOs, more than 11 million taxpayers, nearly $26 billion in annual qualified contributions, and as many as 2.2 million scholarships annually. These are agency estimates of potential scale, not current counts or measured results. They should not be read as evidence that those outcomes have occurred or are certain.
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Quick Recap
What to verify before making a contribution
- Confirm that your state or the District of Columbia has elected to participate.
- Check that the intended SGO appears on the applicable current state list and satisfies federal section 25F requirements.
- Review current IRS guidance for the contribution and credit rules that apply to your tax year; the up-to-$1,700 figure is IRS guidance for 2027 and certain cash contributions.
- Remember that the substantive regulations issued October 1, 2026, are proposed, while the temporary procedural regulations are a distinct action effective December 1, 2026.
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