IRS Plans New Tax Credit Rules for K-12 Scholarship Donations

What Is the Credit

Under the 2025 law known as the One Big Beautiful Bill Act, individuals who donate to approved Scholarship Granting Organizations (SGOs) may receive a federal tax credit up to $1,700.

The credit is nonrefundable, meaning it can reduce your federal tax liability to zero but will not generate a refund.

The credit becomes available for tax years beginning after December 31, 2026.

Who Qualifies as an SGO

To be eligible, an SGO must meet strict requirements under federal law:

• Must be a tax-exempt 501(c)(3) nonprofit.

• Must spend at least 90 percent of its income on awarding scholarships to eligible students.

• Must award scholarships to at least 10 students and cannot award all scholarships to students at the same school.

• Donors cannot earmark contributions for specific students.

• Scholarships must go to K-12 students from households with income at or below 300 percent of the area median income, and students must otherwise qualify for public school enrollment.

How the Credit Works

Individuals who donate cash to a qualified SGO in a participating state may receive a dollar-for-dollar tax credit up to $1,700 each year.

If a state offers its own tax credit for the same contribution, the federal credit is reduced so taxpayers cannot claim both benefits in full.

Unused federal credit can be carried forward for up to five years. Donations claimed for this credit cannot also be claimed as a charitable deduction.

State Opt-In Requirement

This federal credit only applies in states that choose to participate.
Each participating state must annually certify a list of SGOs that meet the federal requirements. If a state does not opt in or fails to submit its list, donations to SGOs in that state will not qualify for the credit.

What’s Happening Now

On November 25, 2025, the IRS and the Treasury Department issued Notice 2025-70 requesting public comments before issuing final regulations. They are seeking input on how states should certify SGOs, how SGOs should maintain records, and how to handle SGOs that operate across multiple states. Public comments are due by December 26, 2025.

What This New Credit Could Mean

For donors, the credit could allow up to $1,700 of federal tax liability to be redirected directly toward scholarships for students.

For SGOs and private schools, the change could provide a significant increase in available scholarship funding.

For families with low or middle incomes, it may expand access to private, parochial, or alternative schooling options.

Because the rules are still being developed, individuals and organizations should monitor state participation and SGO certification updates before contributing.