National · Family Finance

Public school foundations gear up for federal tax credit scholarships ahead of 2027 launch

The new federal tax credit scholarship program under P.L. 119-21 allows donations to fund K-12 expenses including public school services. With Treasury rules pending, a national nonprofit and some districts are setting up scholarship organizations to participate.

School Decision NewsroomAugust 31, 2026

The One Big Beautiful Bill Act, signed into law July 4, 2025, created the first federal tax credit scholarship program, effective for contributions made on or after January 1, 2027. Under the new Internal Revenue Code Section 25F, individuals can claim a nonrefundable tax credit of up to $1,700 per year for cash donations to approved Scholarship Granting Organizations. The law allows scholarships to cover a broad range of expenses at public, private, or religious schools, including tuition, fees, books, supplies, tutoring, special needs services, transportation, uniforms, room and board, extended day programs, and computer technology. A new national SGO called Future School Fund has launched to help public school districts and charter networks access the program, and some districts are exploring creating their own SGOs, according to a report from FutureEd.

Program structure and state opt-in

Student eligibility is limited to children who are eligible to enroll in public elementary or secondary school and whose household income does not exceed 300 percent of area median gross income, using the prior calendar year's household income, according to the Congressional Research Service. SGOs must be 501(c)(3) nonprofits that are not private foundations, must spend at least 90 percent of their income on scholarships, must provide scholarships to at least 10 students who do not all attend the same school, must maintain separate accounts for qualified contributions, and must not earmark contributions for specific students, per IRS guidance.

States must voluntarily opt in by submitting a list of qualifying SGOs to the Treasury Secretary. According to Holland & Knight, 30 states have officially filed elections using IRS Form 15714. The Education Commission of the States reported that its tracker identified 31 states planning to opt in, while governors in Minnesota and Wisconsin have said their states will not participate. Treasury previewed forthcoming guidance on June 10, 2026, stating it expects to issue proposed regulations by the end of September 2026 and that states, SGOs, and taxpayers may rely on those rules for tax year 2027.

$25.9 billion over 10 yearsEstimated foregone federal revenue from the tax credit scholarship program, according to the Joint Committee on Taxation as cited by the Education Commission of the States. [4]

State-level precedent and public school participation

Approximately 20 states already operate state-level tax credit scholarship programs. The federal credit is structured similarly but with several differences: there is no cap on total donations, eligibility uses 300 percent of area median income rather than the federal poverty level, and unlike most state programs there is no requirement that students previously attended public school, no mandate for academic testing of recipients, and no accreditation or background-check requirements for participating private schools, according to the Bipartisan Policy Center.

Oklahoma has a universal state education tax credit program that also includes public schools, but public schools in Oklahoma have struggled to take advantage of it due to complexity and lack of administrative capacity, according to the FutureEd report. The national SGO Future School Fund, led by former Rhode Island and District of Columbia education official Deborah Gist, aims to make the federal program plug-and-play for public districts by handling compliance and operations. The fund is entering non-binding letters of intent with school systems and plans to be an approved SGO in every state that opts in.

Evidence and open questions

The Institute on Taxation and Economic Policy, cited by the Education Commission of the States, estimates that 138 million tax filers are eligible to claim the credit. If 10 percent of eligible filers participate, the ITEP projects approximately $23.5 billion per year in contributions to SGOs; if 20 percent participate, nearly $50 billion per year. The program currently has no cap on total participation.

The Urban Institute, also cited by the Education Commission of the States, recommended that state policymakers proactively assess their current oversight infrastructure for monitoring charities, examine regulations for private schools, and develop estimates of potential SGO revenue before the program launches, acknowledging that implementation details remain uncertain pending Treasury regulations.

A Brookings Institution analysis described the program as messy but potentially worthwhile, noting that it leaves potentially billions in tax revenue allocation to the discretion of donors, SGOs, and recipients with limited transparency. The analysis also said the program could support educational enrichment such as tutoring, technology, and after-school programs for public school students in ways that go beyond traditional school choice models. The findings are contested, with competing assessments of the program's likely effects.

Analysis

By the School Decision Newsroom, written after the reporting above was filed.

The 300 percent income threshold covers 92 percent of all K-12 students, not just low-income families.

Eligibility is capped at 300 percent of area median gross income, which averages roughly $330,000 for a family of four nationally. It ranges from $234,000 in Mississippi to nearly $500,000 in Washington, D.C. An analysis by the American Federation for Children estimates that 51.7 million children, or 91.7 percent of all K-12-eligible students, pass the income test. Only about 3.9 million children live in households above the threshold. This is nearly universal eligibility, not a poverty-targeted program, and the scholarship pool will be shaped by which families seek it out, not by who qualifies.

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Oklahoma's tax credit program, the closest analog, sent over 90 percent of its money to families already in private school.

Of 39,242 approved students in Oklahoma's Parental Choice Tax Credit for 2025-2026, only 3,644, or 9.3 percent, had been enrolled in public school the prior semester. The rest were already in private school. Between reporting periods, students from families earning above $250,000 grew by 10.3 percent while those earning $75,000 or less fell by 8.1 percent. The federal program imposes even fewer guardrails than Oklahoma's: no prior public school requirement, no accreditation mandate for participating private schools. If Oklahoma's pattern holds, most federal scholarship dollars will subsidize families already paying private tuition rather than create new access for public school families. That is our read, not the data's.

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Two things must happen before January 2027, and the first deadline is September 2026.

Treasury expects to issue proposed regulations by the end of September 2026, and its regulatory vehicle appears to be an Interim Final Rule that would bind on publication. States must then submit their lists of qualifying scholarship granting organizations to the Treasury Secretary in the fall of 2026. A parent should first check whether their state has filed an election using IRS Form 15714. Thirty states already have. Then watch for whether any SGO serving their district appears on the state's submitted list. The credit takes effect for contributions made on or after January 1, 2027, so nothing flows to students before then.

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Sources

Congressional Research Service. Federal Tax Credit Scholarship Program Included in P.L. 119-21, the FY2025 Reconciliation Law View
IRS/Treasury Department. Notice 2025-70 — Request for Comments on Individual Tax Credit for Qualified Contributions to Scholarship Granting Organizations View
Holland & Knight LLP via JD Supra. Education Freedom Tax Credit to Take Effect in 2027: Proposed Regulations Expected Soon View
Education Commission of the States. How the Federal Tax Credit Scholarship Program May Affect States View
U.S. Department of the Treasury. Treasury Previews Education Freedom Tax Credit Guidance View
Accounting Today. Treasury plans guidance on new scholarship tax credit View
FutureEd. Q&A: Deborah Gist on Federal Tax Credit Scholarships and Public Schools View
U.S. Department of Education. Education Freedom Tax Credit Fact Sheet View
Bipartisan Policy Center. The New Scholarship Tax Credit: Potential Impacts on the Landscape of Federal K-12 Funding View
Brookings Institution. The OBBBA's Tax-Credit Scholarship Program Is a Mess That Might Be Worth Opting Into Anyway View
American Federation for Children. Who Can Receive a Scholarship: EFTC Eligibility Report View
Oklahoma Tax Commission. Parental Choice Tax Credit (PCTC) Report for School Year 2025-2026 View
KFOR. Gap between wealthy, low-income families in Oklahoma private school tax credit widens even more View
EFTC Credit. Treasury previews the §25F proposed regulations: September timeline, a 90% safe harbor, and a multistate path View
Oklahoma Watch. Were 90% of private school tax voucher recipients already enrolled in private schools and less than 1% financially disadvantaged? View