New $1,700 Federal Credit for Scholarship Gifts Starts in 2027, but Only in States That Opt In

The Treasury Department and the IRS on December 12, 2025 released the procedure states will use to opt into a new federal tax credit for donations to scholarship-granting organizations. The credit, created by this year's tax law in Section 25F, is worth up to $1,700 a year and begins January 1, 2027. According to the IRS announcement, a gift only qualifies if the recipient appears on the list of a state that has chosen to take part. For high-income donors, the credit offers something rare in charitable planning: a dollar-for-dollar reduction in federal tax.

What changed

Rev. Proc. 2026-6 lets a state or the District of Columbia make an Advance Election on Form 15714, signaling that it will participate in 2027 before it submits its list of approved scholarship-granting organizations, or SGOs. States can file the form on or after January 1, 2026, and before a list deadline that Treasury will set in later guidance. A state that never elects and never submits a list will have no qualifying organizations, and residents who give to groups there will get no credit.

Alongside the procedure, Notice 2025-70 asked for public comments on how SGOs should be certified and run, with written comments requested by December 26, 2025.

How the credit works

• The credit covers cash contributions only, made by U.S. citizens or residents to a listed SGO that uses the money for scholarships.
• It is capped at $1,700 per taxpayer per year and is nonrefundable.
• It is reduced by any state tax credit the donor receives for the same contributions.
• A contribution that produces the federal credit cannot also be deducted as a charitable gift.
• Unused credit can be carried forward for up to five years.
• Scholarships must go to elementary and secondary students from households with income no greater than 300% of area median gross income.

The after-tax math

Example: a married couple in the 37% bracket gives $1,700 in cash to a listed SGO in 2027, and their state offers no scholarship credit of its own. The federal credit cuts their tax bill by the full $1,700, so the gift costs them nothing after federal tax.

If the same $1,700 went to an ordinary charity and they itemized, the deduction would save at most about $629 at a 37% rate, and less under the charitable deduction floor and the roughly 35% benefit cap that apply to top earners from 2026.

Amounts given above $1,700 may still qualify for a regular charitable deduction, as Notice 2025-70 notes, but they do not earn additional credit.

Who is affected

The benefit is small relative to high incomes but is effectively a $1,700 redirection of federal tax for each spouse or filer who qualifies, and it does not depend on itemizing. Whether households can use it depends on their state. Some governors have signaled interest and others opposition, so availability may split along state lines.

Moves to discuss with your advisor

Donors who already support private-school scholarship funds may want to track whether their state files Form 15714 during 2026 and which organizations appear on its list. Those in states with existing scholarship tax credits often consider how the federal reduction for state credits changes the combined value. It is worth confirming with a CPA whether a household has enough federal tax liability to use a nonrefundable credit in the year of the gift.

What to watch

Treasury still has to set the deadline for state SGO lists and the rules for later years. The first state elections can arrive from January 1, 2026, and the first gifts that earn the credit can be made on January 1, 2027.

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