The Education Freedom Tax Credit (EFTC)

Yes. If the same contribution earns a state credit, Treasury's proposed regulations subtract that state credit from the contribution first and then apply the $1,700 federal cap, so a $2,500 gift that earns a $500 state credit still supports the full $1,700 federal credit. The combined benefit can't exceed the gift itself. Separate donations to each program also work. How the state-credit ordering rule works →

No. Only individual taxpayers can claim the federal credit. Giving through a business entity doesn't work either: under Treasury's proposed regulations, a partner's or S corporation shareholder's share of the entity's gift is not a qualified contribution, even if it is deductible, so give directly as an individual.

No. Donations cannot be earmarked for a specific student. SGOs independently determine scholarship recipients based on eligibility and available funds. Large donors face a further limit: under Treasury's proposed regulations, someone who gives an SGO more than $5,000 in a year, when that is also more than 2% of the SGO's contributions for the year, is a substantial contributor, and that SGO cannot award scholarships to the donor's family for that year and the next.

No. The program is uncapped; there is no aggregate limit on the total credits available.

Families in non-participating states cannot receive scholarships, though taxpayers can still claim the credit by donating to an SGO in a participating state. Treasury's proposed regulations confirm a donor may give to an SGO on any participating state's list, wherever the donor lives, while scholarships go only to students who reside in the SGO's state. Your tax dollars fund scholarships for students somewhere, they just go to another state. Give to any participating state →

EFTC scholarships are available to households whose income for the calendar year before they apply is at or below 300% of Area Median Gross Income (AMGI, the term the statute takes from IRC §42; Treasury's proposed regulations compute it the way HUD sets Section 8 income limits, adjusted for family size, and the IRS will publish the figures each year). Treasury estimates about 95% of American children live in households under that limit. Scholarships can fund private school tuition, tutoring, and educational therapies including for students with disabilities, and, where state law treats them as schools, microschool and homeschool expenses (Treasury's separate §530 guidance on what counts as a school is still pending), expanding options for families who can't otherwise access them. By statute, SGOs must give priority to (1) students who received a scholarship from the SGO the prior school year and (2) siblings of prior recipients; Treasury's proposed regulations say that priority matters most for tuition awards and let SGOs prioritize tutoring or special-needs awards by need. Some SGOs further prioritize special-needs students or specific underserved communities, or set a lower income limit, though that is at each SGO's discretion.

No scholarship funding cost falls on the state. EFTC is funded through federal tax credits, so there is no state appropriation and no impact on state education budgets, and the credit itself is administered federally by the IRS and U.S. Department of the Treasury. A participating state's role is to elect to opt in and submit its list of qualifying SGOs to the IRS each year; under Treasury's temporary regulations that includes certifying each listed SGO and reviewing its annual audit. Those are administrative steps, not new scholarship spending.

EFTC scholarships follow the student, not the school. They cover qualified K-12 education expenses (as defined in IRC §530(b)(3)(A)), including tuition and fees, tutoring, books and supplies, computers and other equipment, extended-day programs, and special-needs services, for eligible students across a range of settings: private schools, public or charter school students who use them for qualified expenses beyond free tuition, and, where state law treats them as schools, microschools and homeschools. Treasury says separate §530 guidance spelling out qualified expenses and what counts as a school is a high priority; it was not out as of October 1, 2026. Under Treasury's proposed regulations, tuition and other school charges are paid directly to the school, and families are repaid only for receipted qualified expenses. The emphasis is on meeting individual student needs rather than one-size-fits-all approaches. How scholarship money is paid out →

EFTC scholarships can be used for specialized services often critical for students with disabilities, including occupational therapy, physical therapy, behavioral therapy, speech-language services, assistive technology, and access to schools with specialized instruction designed for specific learning needs. The statute's expense list (IRC §530(b)(3)(A)) names special-needs services, and Treasury's pending §530 guidance will set the details. Treasury's proposed regulations also add a safe harbor: when a school in a low-income area (located in a HUD qualified census tract, or with at least 80% of its students living in one) selects students by need for individual tutoring or special-needs services, an SGO can fund them without verifying household income, provided an annual third-party audit confirms, among other things, that a professional independent of the provider diagnosed each student's need.

As Colorado Governor Jared Polis stated, 'I would be crazy not to opt in.' If a state doesn't participate, federal tax dollars from its residents will flow to scholarships in other states instead. Opting in captures these federal resources at zero state cost, serves working families across the income spectrum, and gives families educational options without affecting state-budget priorities. The deadline is close: under Treasury's temporary regulations, a state joining for 2027 must file its advance election on Form 15714 by January 1, 2027, then submit its SGO list by February 15, 2027. The 2027 state calendar →

Like any tax-credit program, EFTC isn't immune to abuse, but Congress built strong statutory safeguards into §25F. The credit is capped at $1,700 per taxpayer, which limits the incentive for fraud. Qualifying donations must be made in cash and cannot be earmarked for specific students. The IRS and U.S. Department of the Treasury provide federal oversight, and scholarship granting organizations must be 501(c)(3) public charities (not private foundations) that spend at least 90% of their income on scholarships, keep contributions in separate accounts, file annual reports, and serve at least 10 students who do not all attend the same school. Treasury's October 2026 regulations add more layers: a unique-donor-number system lets the IRS match every claimed credit to a real donor and a real SGO, without donors ever giving an SGO their Social Security number; the proposed rule sends tuition directly to schools, repays families only against receipts, and requires systems that catch duplicate awards for the same expense; and it would require every SGO to furnish an annual audit to each state that lists it.

You can receive a dollar-for-dollar federal tax credit of up to $1,700 per year by donating to a qualified scholarship granting organization (up to $3,400 on a joint return when each spouse gives, under Treasury's proposed regulations). This means if you donate $1,700, you reduce your federal tax liability by $1,700. Unused credits can be carried forward for up to five years. If your state also offers a scholarship tax credit, you can use both; a state credit on the same gift is subtracted before the $1,700 federal cap applies.

Yes, a refund does not disqualify you. A refund only means your paycheck withholding was larger than your final tax bill, so the IRS hands the extra back. It does not mean you owed no tax. The credit applies to your total federal tax liability, the tax you actually owe on your income, not to your refund or to any balance due at filing. Example: your tax liability for the year is $15,000 and your employer withheld $20,000, so you're due a $5,000 refund. A $1,700 EFTC credit cuts your liability to $13,300, which increases your refund to $6,700. You receive the full $1,700 either way, as a larger refund if you're getting one, or as a smaller bill if you owe at filing. The only limit is that the credit can't exceed your liability for the year (it's non-refundable), but any taxpayer with at least $1,700 of federal tax, almost anyone with a normal income, gets the full benefit, and lower earners can carry the unused portion forward up to five years. And you don't have to wait for that bigger refund: adjusting your Form W-4 lets you take the benefit in your paychecks during the year instead. Get the credit in your paycheck, not the refund →

Yes, under Treasury's proposed regulations, which taxpayers may rely on for contributions made in 2027. The statute caps the credit at $1,700 'to any taxpayer,' and the proposed rule released October 1, 2026 treats spouses filing jointly as separate taxpayers for that cap. Each spouse's own qualified contributions earn a credit of up to $1,700, so a couple can claim up to $3,400 on a joint return when each spouse gives at least $1,700 and designates the gift as a §25F contribution when making it. The proposal does not say how one gift from a joint account would be split between spouses, so the safe practice, and Treasury's own example, is two gifts, one from each spouse. The combined credit still can't exceed the couple's federal tax liability, and any unused amount carries forward up to five years. How the $3,400 joint-return rule works →

No. EFTC is funded through federal tax credits, not through state or local education budgets. Public school funding remains unchanged. Additionally, EFTC scholarships can be used to support students in public schools, since eligibility turns on household income and being eligible to enroll in public school, not on leaving it: academic tutoring, computers and other equipment, extended-day programs, and special-needs services are all on the qualified-expense list (Treasury's separate §530 guidance will fill in the details). The program expands options without reducing public school resources.

EFTC is a federal tax credit against your federal income taxes, while state scholarship tax credits reduce your state tax liability. EFTC offers up to $1,700 per taxpayer with no aggregate cap nationwide. State programs vary by state with different credit amounts, caps, and eligibility rules. You can benefit from both: under Treasury's proposed regulations a state credit on the same gift is subtracted before the $1,700 federal cap applies, and separate donations to each program also work.

The EFTC credit becomes available starting with the 2027 tax year (taxes filed in 2028). Donations made on or after January 1, 2027 to qualified scholarship granting organizations in participating states will be eligible, if you designate the gift as a §25F contribution when you make it. Under Treasury's proposed regulations, you can rely on an SGO's presence on the IRS SGO list at the time you give, and you claim the credit on Form 8525 using the donor number from the SGO's written acknowledgment (due to you by January 31, 2028 for 2027 gifts). States are opting in now: for 2027, each must file its advance election by January 1, 2027 and submit its SGO list by February 15, 2027. Form 8525 and your donor number →

Scholarship granting organizations (SGOs) are responsible for verifying eligibility. They must confirm that recipients live in households at or below 300% of area median gross income, are eligible to enroll in public K-12 schools, and reside in the SGO's state. Treasury's proposed regulations allow four methods: (1) direct verification from pay stubs, prior-year federal or state returns, IRS transcripts, W-2s, or other relevant data sources; (2) categorical eligibility, an award letter dated within the last 12 months showing a household member currently receives SNAP, TANF, WIC, Section 8 housing, or SSI (only those five programs; school-wide free or reduced-price lunch does not count); (3) a safe harbor for individual tutoring or special-needs services at schools in low-income areas, where the school selects students by need; and (4) foster children, who automatically meet the income test. SGOs certify compliance to the IRS each year and undergo an annual audit shared with each state that lists them, ensuring scholarships reach the intended beneficiaries, working families seeking educational options. How income is measured and verified →

It depends on your state, and it is more complicated than it first appears. A homeschooled child can be an eligible student (the tests are household income and being eligible to enroll in public school), but a scholarship can only pay for a 'qualified expense,' which the law (IRC §530(b)(3)(A)) ties to a 'public, private, or religious school' as defined under your state's law. Where a state treats the home itself as a school, homeschool expenses, curriculum, online courses, tutoring, educational therapies, books, supplies, and technology, can qualify. Where a state routes home education through a separate 'home instruction' category that is not a school, a homeschooler may have no qualifying expense to spend the scholarship on. Treasury said in its June 2026 guidance preview that a home school would be treated as a school 'if it is treated as a school under State law.' The October 2026 proposed regulations define 'school' by cross-reference to §530 without addressing homeschools directly, and Treasury says separate §530 guidance on schools and expenses is a high priority, so the question stays open until that guidance is out. On current law, the answer turns on which state you live in. We classified all 50 states plus DC. See the state-by-state homeschool eligibility map →

At least 90% of a qualified scholarship granting organization's income must be spent on scholarships, this is a federal requirement. The statute measures the test against income, not against donations alone, and Treasury's proposed regulations define income as the organization's total gross receipts from all sources, so investment earnings and other receipts count in the base. Each year's 90% must be paid out as scholarships by the end of the following year. An SGO whose activities are at least 85% scholarship granting may instead apply the test to its §25F account alone (designated gifts plus their earnings). Whatever the test does not require for scholarships, at most 10% of that income, can go to operations. This high threshold ensures the vast majority of every donation directly benefits students and families. How the 90% test and its timing work →

To become a qualified SGO, your organization must: (1) be a 501(c)(3) public charity (not a private foundation), (2) be 'located in' a state that has opted into EFTC, which Treasury's temporary regulations define as being authorized to do business there and complying with that state's general charity laws (your own headquarters can be located anywhere), (3) register in the IRS SGO portal (not yet open as of October 1, 2026) and be included on that state's list of eligible SGOs filed with the IRS, (4) keep all designated gifts in a separate §25F account and spend at least 90% of its income on scholarships by the end of the following year, (5) serve at least 10 students who do not all attend the same school, and award no scholarships to disqualified persons such as board members, selection-committee members, substantial contributors, and their families, and (6) verify recipient eligibility, acknowledge donors by January 31, report to the IRS, and, under the proposed regulations, file an annual certification and get an annual audit. Your state's designated office runs the application, but it must list every organization located in the state that qualifies and asks, and it cannot require SGOs to operate under rules stricter than §25F's (such as limits on school types or expenses). How to start an SGO →

Yes. Many existing scholarship granting organizations that currently operate state-level scholarship tax credit programs can also participate in EFTC, provided they meet the federal requirements and receive state designation. Organizations can administer both state and federal scholarship programs simultaneously, expanding their ability to serve families. Treasury's proposed regulations include an 85% safe harbor that matters here: a single-state organization whose activities are at least 85% scholarship granting (state tax-credit scholarships count) can apply the federal operating tests, including the 90% test, to its §25F account rather than the whole organization. An organization below 85% gets no safe harbor and must meet the 90% test on all of its receipts. How the 85% safe harbor works →

Qualified SGOs must file annual reports demonstrating compliance with EFTC requirements. These reports verify that at least 90% of the organization's income was spent on scholarships, that recipients met income eligibility (at or below 300% of area median income), that scholarships were awarded to at least 10 students across multiple schools, and that no donations were earmarked for specific students. The IRS and Department of the Treasury oversee this reporting. Treasury's October 2026 regulations set the specifics. Under the temporary regulations, which take effect without a comment period and apply from September 1, 2026, an SGO registers in the IRS SGO portal (not yet open as of October 1, 2026), gives each donor a written acknowledgment by January 31 with its EIN, the year's designated total, and the donor's unique donor number, and reports each donor's total to the IRS by February 28. Under the proposed regulations, it also files an annual certification and report with its Form 990, with a copy to each listing state, and gets an annual financial and programmatic audit: by an independent professional or accredited body if total receipts top $500,000, or by a committee of independent persons if receipts are $500,000 or less. The audit and certification rules →

Yes, within the federal framework. SGOs can establish additional selection criteria beyond the federal income requirement, such as prioritizing students from specific geographic areas, students with special needs, first-generation students, or students from underserved communities. However, scholarships must serve at least 10 students across multiple schools, and all recipients must meet the federal income eligibility threshold. Treasury's proposed regulations confirm an SGO may narrow its own focus, for example to certain subjects or to a lower income limit such as 80% of area median gross income, as long as it still meets the federal rules, including renewal and sibling priority and the bar on awards to disqualified persons.

The federal calendar sets the pace, and each state runs its own application within it. For 2027, states submit their SGO lists by February 15, 2027; an organization a state adds after its deadline waits for the next year's list. A new organization can be listed before it has filed any federal reports if its governing documents and written policies expressly require the §25F operating rules and show it can meet them. A state may also list organizations whose 501(c)(3) applications are still pending, but only if the exemption, once granted, will be effective by January 1 of the list year, so a new organization aiming for a 2027 list should be formed by January 1, 2027 and file Form 1023 in time for its exemption to reach back to formation. Organizations should prepare by ensuring their 501(c)(3) status is current, registering in the IRS SGO portal once it opens, developing scholarship selection and verification processes, and establishing reporting systems to meet federal requirements. The 2027 calendar for new SGOs →