In brief
Beginning January 1, 2027, an individual may claim up to $1,700 for qualifying cash gifts to an approved scholarship organization.
A state or the District of Columbia must elect to participate and provide the IRS with its approved organization list.
Scholarship organizations can use donations for tuition, fees, tutoring, extended-day programs, and supplies.
The new federal school-choice credit sounds simple. Give money to a scholarship group, then claim a credit on your tax return.
But the first real decision is not the donor's. It belongs to the state.
Under new Section 25F of the tax code, the Federal Scholarship Tax Credit begins in 2027. The credit can be worth up to $1,700 for qualifying cash contributions to an approved Scholarship Granting Organization, or SGO.
That is a credit, not a deduction. A deduction lowers taxable income. A credit reduces the tax bill dollar for dollar, subject to the law's rules.
The state gate comes first
The IRS says a state or the District of Columbia must elect to participate before donations in that state can qualify. The state must also send the IRS a list of approved SGOs.
That creates a two-step check for tax preparers. First, confirm the taxpayer's state is participating. Then confirm the recipient organization appears on the approved list for the relevant year.
The IRS had listed 30 participating states for 2027 as of September 14, 2026. That list can change, so a saved screenshot or old marketing page is not enough when filing season arrives.
What the money can support
SGOs are nonprofits that collect qualified donations and award scholarships for education expenses. Those costs may include private-school tuition, fees, academic tutoring, extended-day programs, and supplies.
The credit will likely draw attention because it gives taxpayers a direct tax incentive to fund scholarships. It is also politically contested. Critics argue the program shifts public support toward private education.
That debate will not change the return-preparation mechanics. The job for a preparer is to separate the marketing pitch from the substantiation the tax file needs.
The awareness campaign is already here
ACE Scholarships says it has already engaged about 5,000 CPAs and is launching a national campaign that will run through 2027. The campaign is aimed at taxpayers, parents, school leaders, and tax professionals.
That means clients may walk into tax season knowing the headline but not the limits. Some may assume any school donation qualifies. Others may confuse the maximum contribution with a guaranteed refund.
The clean answer is slower and less exciting. Eligibility depends on the final federal rules, state participation, the approved SGO list, the timing of the gift, and the taxpayer's own facts.
What tax pros should save
Preparers should keep the donation receipt, payment evidence, the organization's approval status, and the participating-state list used for the return. Firms should also decide how their software and review checklist will flag Section 25F claims.
The credit does not open until January 1, 2027. That gives firms time to build the check before the first client arrives with a receipt and a confident answer from social media.
The number is easy to remember. The state gate is the part clients will miss.
