Updated October 28, 2026. Quick answer: The federal scholarship tax credit gives you up to $1,700 against your tax for cash gifts to a scholarship granting organization, new section 25F of the Internal Revenue Code from Public Law 119-21 section 70411. It applies to taxable years ending after December 31, 2026, so 2027 is the first full year for a calendar-year filer, and it only works in a state that has chosen to participate. The $1,700 limit is written in the statute, so no 2027 Revenue Procedure changes it.
The credit and its limit
| Piece | Amount | Where it is written |
|---|---|---|
| Maximum credit per taxpayer per year | $1,700 | Section 25F(b)(1) |
| Eligible student household income | At most 300% of area median gross income | Section 25F(c)(2)(A) |
| Organization spending on scholarships | At least 90% of its income | Section 25F(d)(1)(B) |
| Carryforward | Up to 5 years after the year the credit arose | Section 25F(f)(2) |
| First taxable years | Taxable years ending after December 31, 2026 | Section 70411(c)(1) |
The credit is dollar for dollar: “there shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the aggregate amount of qualified contributions made by the taxpayer during the taxable year”. The ceiling reads “The credit allowed under subsection (a) to any taxpayer for any taxable year shall not exceed $1,700.”. It is reduced by any state credit for the same gift: “shall be reduced by the amount allowed as a credit on any State tax return of the taxpayer for qualified contributions”.
Only states that opt in
A contribution qualifies only if it is made to an organization on a state’s list. A covered State is one that “voluntarily elects to participate under this section”. This page does not list which states have opted in; the statute leaves that to each state, and the list is submitted to the Treasury by the state. The date the law starts is “shall apply to taxable years ending after December 31, 2026”.
Which gifts and which organizations
A qualified contribution is “a charitable contribution of cash to a scholarship granting organization that uses the contribution to fund scholarships for eligible students solely within the State”. The organization has to be a 501(c)(3) that is not a private foundation, keep these gifts in separate accounts, give scholarships to “10 or more students who do not all attend the same school” and spend “not less than 90 percent of the income of the organization on scholarships for eligible students”.
No double benefit and the carryforward
You cannot also deduct the gift: “shall not be taken into account as a charitable contribution for purposes of section 170”. An unused credit carries forward, but “No credit may be carried forward under this subsection to any taxable year following the fifth taxable year after the taxable year in which the credit arose.”
The scholarship side
Scholarships paid under the program are excluded from the family’s income. The Act adds a new section 139K that covers amounts received “pursuant to a scholarship for qualified elementary or secondary education expenses of an eligible student which is provided by a scholarship granting organization”.
Common mistakes
- Giving to any scholarship fund. Only organizations on a participating state’s list qualify.
- Claiming the credit and a charitable deduction for the same gift. The statute denies the deduction.
- Assuming every state participates. Each state has to elect to take part.
- Expecting a credit above $1,700. The ceiling is per taxpayer per year, less any state credit.
Related: the 2027 education credits, charitable giving, college money and 529 plans, Form 1098-T box 5 scholarships or grants, and the 2027 tax numbers.
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- Public Law 119-21 (One Big Beautiful Bill Act), July 4, 2025, enacted text (U.S. Government Publishing Office): www.govinfo.gov
- Related official page (not quoted): Public Law 119-21 record page: www.govinfo.gov
Read from the primary documents linked above on October 28, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer or the IRS itself is the right place to confirm anything consequential.