EFTC in Kentucky
Kentucky is participating in the federal Educational Choice for Children Act scholarship program. Also known as the Federal Scholarship Tax Credit (FSTC), the program was enacted as IRC §25F and takes effect January 1, 2027.
- Governor
- Andy Beshear
- Democrat
- Status
- Opted in
- As of 2026-03-17
- By legislative override of Governor Beshear’s veto
- Program begins
- January 1, 2027
- Federal tax credit live
What EFTC means for Kentucky
Because Kentucky's legislature opted the state into EFTC over Governor Andy Beshear's veto, families in Kentucky will be eligible for scholarships funded through the program when it goes live on January 1, 2027. Scholarship Granting Organizations (SGOs) on Kentucky's list will receive donations from federal taxpayers and award them as scholarships to qualifying K-12 students who live in Kentucky.
Under Treasury's temporary regulations, released October 1, 2026, which take effect without a comment period and apply from September 1, 2026, Kentucky completes its 2027 election by submitting its list of SGOs to the IRS by February 15, 2027; if a state misses that date, no organization in it qualifies as an SGO for 2027. The list must include every organization located in Kentucky that asks to be on it and meets the federal requirements, and the state may not impose operating rules on SGOs that are stricter than §25F, such as limits on the types of schools or expenses scholarships can cover.
Donors in Kentucky, and anywhere else in the country, can claim a federal income tax credit of up to $1,700 per taxpayer for contributions to a qualifying SGO, beginning January 2027. Under Treasury's proposed regulations, which taxpayers may rely on for 2027 contributions, spouses filing jointly are treated as separate taxpayers, so a married couple can claim up to $3,400 when each spouse makes and designates a gift. The credit is nonrefundable and capped, but it lets taxpayers redirect federal income tax that would otherwise go to the U.S. Treasury into scholarships for students in Kentucky or any other participating state.
Kentucky's participation means credit-eligible gifts from Kentucky donors can fund scholarships for students who live here, rather than flowing only to scholarship organizations in other states. Under the proposed regulations, the student's state of residence is what counts: a Kentucky student can use a scholarship from a Kentucky-listed SGO at a school in another state, while a student who lives elsewhere cannot receive one, apart from narrow exceptions for military and tribal families.
Frequently asked questions about EFTC in Kentucky
Does Kentucky participate in EFTC?
Yes. Kentucky's legislature opted the state in over Governor Andy Beshear's veto (decision: 2026-03-17), making Kentucky families eligible for scholarships when the program begins on January 1, 2027. Under Treasury's temporary regulations, Kentucky completes its 2027 election by submitting its list of qualifying Scholarship Granting Organizations (SGOs) to the IRS by February 15, 2027, and participation is elected again each year.
Who is the governor of Kentucky and what is their position on EFTC?
Governor Andy Beshear (Democrat) vetoed the opt-in bill, which the legislature then enacted over that veto, so the state participates without the governor's assent. Beshear vetoed HB 1; legislature overrode the veto the next day. HB 1 assigns the annual §25F election to the Secretary of State (not the governor), so the filing does not depend on the governor's cooperation. On July 22, 2026, Secretary of State Michael Adams completed the federal advance election and filed a regulation opening Kentucky's SGO declaration process, the first state to open an SGO sign-up. Kentucky appeared on the IRS's official participating-states list on July 27, 2026, taking the official roster to 30.
Can Kentucky residents donate to an SGO and claim the federal tax credit?
Beginning January 1, 2027, any U.S. citizen or resident can claim a federal income tax credit of up to $1,700 a year per taxpayer for donations to a qualifying Scholarship Granting Organization, regardless of the state they live in. Under Treasury's proposed regulations, which taxpayers may rely on for 2027 contributions, spouses filing jointly are separate taxpayers, so a couple can claim up to $3,400 when each spouse makes and designates a gift. Kentucky residents can give to SGOs on Kentucky's list, which fund scholarships for students who live in Kentucky, or to an SGO in any other participating state.
When does the EFTC program begin?
The Educational Choice for Children Act program begins on January 1, 2027. Donations made on or after that date are eligible for the federal tax credit. Under Treasury's temporary regulations, released October 1, 2026, each state elects one calendar year at a time: for 2027, a state must file an advance election with the IRS by January 1, 2027 and submit its list of qualifying Scholarship Granting Organizations by February 15, 2027. For later years, state lists are due by January 1.
Becoming an SGO in Kentucky
To operate as a Scholarship Granting Organization (SGO) in Kentucky under the federal Education Freedom Tax Credit, an organization must meet the §25F requirements that apply in every participating state, plus Kentucky’s own application, documentation, and reporting requirements. Treasury’s temporary regulations (October 2026) limit that state layer: a state must require compliance with its general charity laws and must require application, documentation, and financial reporting tailored to the federal tests and to fraud prevention, but it may not make SGOs operate under rules stricter than §25F, such as limits on the types of schools or expenses scholarships can cover. Here is the current picture.
How Kentucky opted in: House Bill 1 (2026), enacted over Gov. Beshear's veto and codified in KRS Chapter 14; the General Assembly designated itself to make the election
Federal requirements (apply in every state)
- Be a 501(c)(3) public charity: tax-exempt and not a private foundation. If your exemption application is still pending, the temporary regulations let a state list you only if the exemption, once granted, takes effect by January 1 of the list year.
- Be located in the state: authorized to do business there and in compliance with its general charity laws. No in-state headquarters is required (temporary regulations).
- Keep a separate §25F account that holds only qualified contributions and their earnings, and deposit every gift a donor designates for the credit into it.
- Spend at least 90% of the organization's income on scholarships for eligible students. Under the proposed regulations, each year's income must be spent by the end of the taxable year after the year it comes in, and income means total gross receipts from all sources, but an SGO whose activities are at least 85% scholarship granting can apply the test to its §25F account (qualified contributions plus earnings) instead.
- Award scholarships to 10 or more students who do not all attend the same school.
- Fund only eligible students: household income at or below 300% of area median gross income and eligible to enroll in a public school. Under the proposed regulations, the student must also live in the state whose list the SGO is on, with exceptions for military and tribal families.
- Verify each applicant's household income and family size, and pay only for qualified elementary or secondary education expenses.
- Give priority to students who received a scholarship the previous school year, then to their siblings.
- Do not earmark or set aside contributions for a particular student.
- Pay no scholarships to disqualified persons: substantial contributors, officers, directors, anyone who helps select recipients or set awards, and their family members (proposed regulations).
- Register in the IRS SGO portal (not yet open), give each donor a written acknowledgment by January 31 of the following year, and report designated gifts to the IRS by February 28 (temporary regulations).
- Get an annual financial and programmatic audit, from an independent professional if total receipts exceed $500,000, and file an annual compliance certification with your Form 990 (proposed regulations).
- Appear on your state's SGO list, which the state submits to the IRS each year. The state must include every organization located there that asks to be listed and meets these requirements, and may remove one only through a procedure that affords due process (temporary regulations).
Sources: the §25F statute; Treasury’s temporary regulations (T.D. 10057), which take effect without a comment period and apply from September 1, 2026; and its proposed regulations (October 2026), which taxpayers, SGOs, and states may rely on for contributions made on or after January 1, 2027 but which are not final.
Kentucky-specific requirements
- The Secretary of State collects a fee from SGOs (amount set by regulation) to cover the program's administrative costs.
Kentucky is unusual: the Secretary of State, not the governor or the revenue department, is the sole official who reports the election and submits the SGO list (by January 1 each year under state law; Treasury's temporary regulations allow until February 15 for the 2027 list). On July 22, 2026, Secretary Adams completed the federal advance election and filed a regulation opening Kentucky's SGO declaration process, and Kentucky appeared on the IRS participating-states list on July 27, 2026. Contact the Secretary of State's office, not the governor's, about filing.
Sources: Kentucky Acts Chapter 4 (2026 RS): enacted text of HB 1; Kentucky Legislative Research Commission: HB 1 (2026 RS) record
Full walkthrough: how to start an SGO. The intake, income verification, receipting, and disbursement a compliant program needs can run on software built specifically for the §25F workflow.
Starting an SGO in Kentucky? Work the free SGO builder, a 21-step checklist that saves your progress, or retrofit an existing nonprofit.
Scholarship Granting Organizations in Kentucky
Our directory tracks the Scholarship Granting Organizations running today’s state tax-credit scholarship programs, the organizations most likely to administer the federal EFTC once official §25F lists are certified.
Browse the national SGO directory →Other states with the same status
States that have also opted in.
Recent Kentucky EFTC / FSTC news
Coverage of Kentucky’s Federal Scholarship Tax Credit decisions and developments.
- State action · September 24, 2026A Kentucky public school district signed an agreement with an SGO so its own students can get §25F scholarships
- State action · September 21, 2026Eight groups have filed to be SGOs in Kentucky. Two say they will serve public-school students, one of them for kids with disabilities.
- State action · September 15, 2026Kentucky approved a statewide SGO founded by its Area Development Districts, and it says it will fund public-school students too
- Federal action · August 24, 2026The White House put §25F in the Rose Garden. The “red and blue” roster it described is mostly red, and most of the blue came by override
- Regulatory / IRS · July 27, 2026The IRS roster reaches 30 states, and for the first time the official count matches our map
- State action · July 22, 2026Kentucky files its federal §25F election and becomes the first state to open its SGO sign-up
- State action · July 7, 2026Kansas completes its federal §25F election: the IRS roster grows to 29, and Kentucky is now the last override state waiting to file
- Analysis · June 4, 2026Three governors vetoed, three legislatures overrode: the veto path into §25F
- State action · March 17, 2026In Kentucky, the official who decides which SGOs qualify is not the governor. It is the Secretary of State.
- State action · March 17, 2026Kentucky legislature overrides Gov. Beshear's veto of FSTC opt-in bill
Learn more about EFTC
In-depth guides on how the program works, who qualifies, and how to participate.
- The real obstacle isn't politics, it's adoptionOnce a state opts in and the program is live, the question that decides whether the Education Freedom Tax Cred…
- Get the credit in your paycheck, not the refundMost people assume a January 2027 donation means waiting until the April 2028 refund to see the $1,700 back, r…
- The CPA's guide to §25FA practitioner's reference to IRC §25F (the EFTC / ECCA / FSTC) and Treasury's October 2026 proposed and tempo…
- Year-end planning: which December mattersThe Education Freedom Tax Credit takes effect January 1, 2027, which turns the usual year-end playbook upside …
- The EFTC, explained for your communityA plain-language, forward-it-to-anyone explainer of the new federal scholarship tax credit: what it is (up to …
- Designating your gift to a schoolSection 25F bans earmarking a donation for any particular student, and that ban is student-level, not school-l…
Keep Kentucky in the program
Kentucky is in because the legislature enacted the opt-in over Governor Beshear's veto. Participation is decided again every year, so tell your legislators, and Governor Beshear's office, that families here are counting on it.
Contact Governor Beshear →
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