The Internal Revenue Service said on June 8, 2026 that 27 states have elected to take part in the Federal Scholarship Tax Credit. The credit, created by the 2025 tax law, lets individuals claim up to $1,700 for cash gifts to qualifying scholarship granting organizations. It starts with contributions made in 2027, and a donor can use it only if the organization is located in a participating state. Several of the highest-tax states are not yet on the list.
What changed
The credit sits in Section 25F of the tax code. It allows a federal income tax credit for qualified contributions to scholarship granting organizations, or SGOs, that fund elementary and secondary education expenses. According to the IRS announcement, participation is voluntary for states. A state that opts in must also give the IRS a list of qualified SGOs.
The IRS's program page says that beginning January 1, 2027, individuals may be able to claim the credit for certain cash contributions of up to $1,700. The June 8 release named these participating states:
- Alabama, Alaska, Arkansas, Colorado, Florida, Georgia, Idaho, Indiana and Iowa
- Louisiana, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, North Dakota and Ohio
- Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, West Virginia and Wyoming
IRS CEO Frank J. Bisignano said the agency hopes more states will join. The IRS will keep an official list as states finish the election process, and it noted that some state websites may not yet reflect their status.
Who is affected
The credit is available to individual taxpayers regardless of income, but its value is most noticeable for households that already give. As of June 8, California, New York, New Jersey, Illinois, Massachusetts and Pennsylvania were not on the list, so residents there had no in-state SGO that qualified. Nothing in the release says whether a donor must live in the same state as the SGO. The requirement it describes is that the SGO be located in a participating state.
The after-tax math
A credit reduces tax owed dollar for dollar. A deduction reduces taxable income, so it is worth the donor's marginal rate. The federal top income tax rate is 37%, the figure employers use for supplemental wages above $1 million.
| Illustrative $1,700 cash gift | Federal tax reduction | Net cost of the gift |
|---|---|---|
| Deducted by a donor in the 37% bracket who itemizes | $629 | $1,071 |
| Claimed as a Section 25F credit | $1,700 | $0 before any other effects |
Example: a married couple in the top bracket who already give about $1,700 a year to education charities could move that amount to a qualifying SGO in 2027. On these simplified numbers, their federal tax would fall by about $1,071 more than the same gift as a deduction. The table ignores state taxes, other federal limits and the rules on combining the credit with a deduction or a state credit for the same dollars. Those details are worth confirming before assuming the full $1,700 benefit.
Moves to discuss with your advisor
- Families who give to private or parochial school scholarship funds may want to ask whether the organization expects to appear on a participating state's SGO list for 2027.
- Households that take the standard deduction get nothing from a charitable deduction for most gifts, which makes a credit relatively more valuable to them.
- Families already using a state scholarship credit, as in several participating states, may want to confirm how the federal and state programs coordinate.
What to watch
The next milestones are additional state elections and each state's published SGO list, which decides where 2027 gifts can go. Watch too for further IRS guidance on how SGOs qualify and how donors substantiate the credit. The decisions in Albany, Sacramento and other high-tax state capitals will decide whether the credit reaches many of the country's highest earners.
Sources
After TAX is an independent publication. Articles are general information, not tax, legal or investment advice. Consult a licensed professional about your situation.
