The One Big Beautiful Bill Act (P.L. 119-21), signed into law July 4, 2025, created the first federal tax credit scholarship program, set to take effect January 1, 2027. The program, codified as Internal Revenue Code Section 25F, allows individual taxpayers to claim a nonrefundable credit of up to $1,700 per year for cash donations to qualified Scholarship Granting Organizations, known as SGOs. These nonprofits then award scholarships to eligible K-12 students. The Joint Committee on Taxation estimates the credit will reduce federal revenues by roughly $26 billion over fiscal years 2025 through 2034, according to the Congressional Research Service.
Household income eligibility is set at or below 300% of area median gross income, a threshold that varies by county. In 2025, area median income ranged from $32,900 in Oglala Lakota County, South Dakota, to $195,200 in Santa Clara County, California, making the cutoff anywhere from about $98,700 to $585,600, depending on location. The income measure does not adjust for household size, a departure from most state scholarship programs, which typically use the federal poverty level.
The American Federation for Children, an advocacy organization, estimated that roughly 51.7 million children, or 91.7 percent of all 56.4 million students eligible to enroll in K-12, meet the income threshold. State-level estimates range from 85.9 percent in D.C. to 96.2 percent in Maine. The analysis was conducted by AFC Senior Fellow Patrick Graff using Census population estimates, American Community Survey microdata, and HUD income limits. Only about 3.9 million children nationwide live above the income cutoff.
State opt-in gap
Income eligibility alone does not determine access. Scholarships can only reach students in states whose governors have formally opted into the program. As of July 14, 2026, according to the EFTC state participation tracker, 30 states have opted in, including Texas, Florida, Virginia, North Carolina, and Kentucky. One state has announced it will join, two governors have vetoed opt-in legislation, four states have declined, and 14 have not yet decided. States that declined include Minnesota, New Mexico, and Oregon.
The AFC analysis found that the 31 states that have opted in or signaled intent are home to 30.9 million eligible students, or 59.8 percent of the national total. The remaining 19 states and D.C., home to 20.8 million eligible students, have not yet opted in. For 20.5 million students in 18 states with no existing voucher, education savings account, or tax credit scholarship program, the federal program could introduce private school choice for the first time.
Donor credit and scholarship mechanics
The credit is worth 100 percent of the donation value, up to $1,700 per individual donor per year, regardless of filing status. Unused credits can be carried forward for up to five years. The cap is per donor, not per student. Scholarship Granting Organizations pool donations and determine individual scholarship amounts. The federal credit is reduced by the value of any state tax credit received for the same donation, and donors cannot claim both the federal credit and the itemized charitable deduction for the same contribution, a design meant to prevent combined benefits exceeding the donation's value.
Scholarships can be used for qualified expenses at public, private, or religious schools, including tuition, fees, books, supplies, tutoring, special needs services, room and board, transportation, and computer technology. A homeschool qualifies if state law recognizes it as a school. Unlike many state programs, the federal law imposes no requirements on private schools that enroll scholarship recipients, such as accreditation, background checks, or testing, as reported by K12 Dive.
SGOs must be 501(c)(3) nonprofits, not private foundations. They must spend at least 90 percent of revenue on scholarships, serve at least 10 students not all at the same school, and cannot earmark contributions for particular students. The law requires SGOs to prioritize scholarships first for returning students, then for siblings of prior recipients, before granting to other qualifying students.
How the federal program compares to state programs
The federal program joins 21 existing state scholarship tax credit programs across the country, according to the American Federation for Children. The largest is Florida's Tax Credit Scholarship Program, enacted in 2001, which served 108,098 students with $631.1 million in annual funding. Most state programs calculate income eligibility as a percentage of the federal poverty level, whereas the federal program uses area median gross income, which varies by geography and does not adjust for household size.
The American Federation for Children has noted that for individual tuition tax credits, a credit of roughly $3,000 to $6,000 is considered key to affecting a family's ability to cover private school costs. The $1,700 federal credit, which is per donor rather than per family, falls below that range, though the program's structure means scholarships come from pooled donations, not directly from donor credits to families.
Prior versions of the legislation that became P.L. 119-21 included an annual volume cap that would have limited the total value of all credits claimed in a given year. That cap was not included in the enacted law, meaning there is no aggregate annual limit on total credits claimed, according to the Congressional Research Service.
Illinois's Invest in Kids Scholarship Tax Credit Program, enacted in 2017, reported zero students participating despite over $42 million in annual funding, showing that tax credit scholarship programs can face participation challenges depending on design and policy environment.
Evidence and mixed findings
The Congressional Research Service noted that before P.L. 119-21, no similar program existed at the federal level, so direct federal-level evidence on outcomes is unavailable. The CRS report describes the program's structure but does not assess results. The program's use of area median gross income and its lack of school-level requirements differ from most existing state programs.
The American Federation for Children, an advocacy organization, states that research has demonstrated that scholarship tax credit programs are positive for student achievement and save money for state and local governments. This claim is sourced to the organization itself and is not independently verified in the provided material.
A Harvard Graduate School of Education analysis described the 300 percent of area median income threshold as a generous cap that rules out the truly wealthy but leaves a large majority of families eligible. This provides independent context for the breadth of the income cutoff but does not assess program outcomes.