--- title: "Education Freedom Tax Credit Explained: What It Is, Who It’s For, and What It Means for K-12 Scholarships" slug: "education-freedom-tax-credit" date: "2026-10-06T14:19:30-05:00" modified: "2026-10-06T14:28:34-05:00" author: "Kaleidoscope" url: "https://www.mykaleidoscope.com/insights/education-freedom-tax-credit/" --- *Last updated October 6, 2026, to reflect the proposed regulations from Treasury and the IRS. This article replaces an earlier version written before the rules were released.* **Quick answer:** The Education Freedom Tax Credit is the federal scholarship tax credit under Section 25F of the tax code, created by the Educational Choice for Children Act. Starting in tax year 2027, individuals who give cash to a listed scholarship granting organization (SGO) can claim a nonrefundable credit of up to $1,700, or $3,400 for married couples filing jointly. The money funds K-12 scholarships for students in households at or below 300% of area median income. ## Education Freedom Tax Credit at a glance | Question | Answer | | --- | --- | | **Official name** | Education Freedom Tax Credit (Section 25F); created by the Educational Choice for Children Act | | **Effective** | Tax year 2027 | | **Credit amount** | Up to $1,700 per individual; $3,400 for married couples filing jointly | | **Refundable?** | No. Unused credit carries forward for up to five years | | **Who can claim it** | Individual taxpayers only. Corporations cannot claim it | | **Eligible contributions** | Cash only. No stock or cryptocurrency | | **Who receives scholarships** | K-12 students in households at or below 300% of area median income, living in the state where the SGO is listed | | **Participating states** | 30 states as of October 1, 2026. Minnesota has declined | | **Cap on total credits** | None. Treasury projects roughly $26 billion a year in contributions by 2030 | *Source: Treasury and IRS proposed regulations, October 2026.* ## What is the Education Freedom Tax Credit? The Education Freedom Tax Credit is a federal income tax credit for individuals who donate cash to scholarship granting organizations that fund K-12 scholarships. Congress created it through the Educational Choice for Children Act, and Treasury and the IRS released proposed regulations in October 2026. It takes effect for tax year 2027. A scholarship granting organization, or SGO, is a 501(c)(3) public charity that collects donations and awards them as K-12 scholarships under the rules described below. ## Who can claim the credit? Only individual taxpayers can claim the credit. Corporations cannot. - **Amount:** up to $1,700 per individual, or $3,400 for a married couple filing jointly. - **Nonrefundable:** the credit can reduce what a donor owes but will not generate a refund. - **Five-year carryforward:** unused credit carries forward for up to five years. - **Cash only:** gifts of stock, cryptocurrency, or other property do not qualify. - **Any participating state:** donors can give to a listed SGO in any participating state, regardless of where they live. ## Which students are eligible for scholarships? Scholarships funded by the credit go to K-12 students in households at or below 300% of area median income who live in the state where the SGO is listed. The credit does not fund college, trade school, or workforce scholarships. Homeschooled students may or may not be eligible. It depends on whether the student’s state treats homeschools as private schools under state law. ## Which states participate? As of October 1, 2026, 30 states have opted in to the credit. Participation is a state-by-state decision, and Minnesota has declined. ## What are the requirements for scholarship granting organizations? Under the proposed rules, an SGO must meet six requirements: - Be a 501(c)(3) public charity - Spend 90% of contributions on scholarships - Serve at least 10 students attending more than one school - Keep a separate account for each state it operates in - Pay schools and vendors directly, with no cash paid to families - Report to the IRS every year Treasury has not yet issued guidance on which specific expenses qualify. ## How much funding will the credit generate? There is no cap on total credits. Treasury projects roughly $26 billion a year in contributions by 2030. That is a significant new stream of K-12 scholarship funding, coming from a much larger pool of individual donors. ## What does the credit mean for K-12 scholarship programs? More funding comes with a specific, demanding compliance bar. Every SGO has to: - Verify household income against area median income - Apply state-by-state residency rules - Keep each state’s funds segregated - Route every payment to a school or vendor - Document that 90% of contributions became scholarships - Report to the IRS annually and give donors clear records for their own tax filings For organizations already running K-12 scholarship programs, and for those weighing whether to operate as an SGO, the real question is readiness: can your intake, eligibility review, disbursement, and reporting hold up to this level of scrutiny from day one? ## What happens next? - Treasury guidance on which expenses qualify - Final regulations following the public comment period - Additional states deciding whether to opt in Kaleidoscope has spent more than ten years helping 450+ organizations run scholarship programs with complex eligibility, payment, and reporting requirements. We will update this page as Treasury releases more guidance. ## Frequently asked questions **When does the Education Freedom Tax Credit take effect?** It takes effect for tax year 2027. **How much is the Education Freedom Tax Credit worth?** Up to $1,700 per individual, or $3,400 for a married couple filing jointly. The credit is nonrefundable, and unused credit can be carried forward for up to five years. **Can corporations claim the credit?** No. The credit is available to individual taxpayers only. **Can donors give stock or cryptocurrency?** No. Only cash contributions qualify. **Can I donate to an SGO in a different state?** Yes. Donors can give to a listed SGO in any participating state, regardless of where they live. **Does the credit fund college, trade school, or workforce scholarships?** No. Scholarships funded through the credit are for K-12 students in households at or below 300% of area median income who live in the state where the SGO is listed. **Are homeschooled students eligible?** It depends on the state. Eligibility turns on whether state law treats homeschools as private schools. **Is Minnesota participating?** No. Minnesota has declined to opt in. As of October 1, 2026, 30 states participate. **What does an organization need to do to operate as an SGO?** Under the proposed rules, an SGO must be a 501(c)(3) public charity, spend 90% of contributions on scholarships, serve at least 10 students at more than one school, keep a separate account for each state, pay schools and vendors directly rather than families, and report to the IRS annually. ## Sources - [Proposed regulations: Federal Scholarship Tax Credit (Federal Register, October 2, 2026)](https://www.federalregister.gov/documents/2026/10/02/2026-20277/federal-scholarship-tax-credit) - [U.S. Department of the Treasury press release](https://home.treasury.gov/news/press-releases/sb0641) *This article is for general information and is not tax or legal advice. It reflects the proposed regulations as of October 2026. Consult a qualified tax advisor before making giving or program decisions.* *Related reading:* - *[The Family Foundation Scholarship Program Audit Checklist](https://www.mykaleidoscope.com/insights/the-family-foundation-scholarship-program-audit-checklist/)* - *[How to Build a Scholarship Rubric](https://www.mykaleidoscope.com/insights/rubric-guide/)* ## Resources for Sponsors [View all resources](/resources/) #### Help students reach their full potential [Contact us](/contact-us)