The New Federal Tax Credit Scholarship: A Series

As the school year ramps up and kids settle in to the new school year, many of us are already looking forward to January.  With the passage of the One Big Beautiful Bill came the creation of the Education Freedom Tax Credit (EFTC) – a program that allows taxpayers to redirect up to $1,700 of federal tax liability to a scholarship granting organization (SGO) of their choosing.   These SGOs can start accepting donations on January 1, 2027 (so the $1,700 tax credit would apply when you file taxes in 2028) and could start issuing scholarships as early as the 2027 school year.

The American Federation for Children estimates that 51.7 million children will be eligible to receive scholarships.  At full utilization, this means that nearly $88 billion could be used for scholarships to support school choice across the country.

This series will take a closer look at the program and attempt to answer some of the questions we anticipate answering the most, such as who is eligible, how to find an SGO to donate to, and how scholarships will be awarded.  This post will be a broad overview of the program with more to follow in the coming weeks.

What is a tax credit scholarship?

According to EdChoice, the nation’s preeminent experts on school choice, define “tax-credit scholarships” as “…[programs that] allow taxpayers to receive full or partial tax credits when they donate to nonprofits that provide private school scholarships.”  This arrangement helps fund school choice without directly increasing the cost to taxpayers.

How can these scholarships be used?

There are several broad categories of expenses for the EFTC program, including tuition and fees, textbooks, school supplies, tutoring and educational therapies, student transportation, and necessary technology such as computers or internet access.

These categories are substantially similar to eligible uses of tax credit scholarships at the state level. Alabama’s tax credit scholarship program allows students to spend funds on the following: tuition and fees, textbooks, tutoring and other educational services and therapies, curriculum and instructional material, and fees associated with taking individual classes at public schools.  Virginia’s tax credit scholarship program allows students to spend funds on school tuition, instructional fees and materials, and school supplies.  Oklahoma operates a much more restrictive program, but funds can still be spent on private school tuition and transportation of special needs students.

Who will be eligible to receive a scholarship?

Eligibility is limited to states that have opted-in to the EFTC  program (XX states as of the date of this publication), and families that make 300% or less of their area’s median family income.  This is a marked departure from many government programs that are based on a certain percentage of the federal poverty level.  By utilizing the area median family income, millions of families who are normally victims of the “benefits cliff” can take advantage of this program.

FundEDU has created a tool that allows families to check their eligibility for EFTC scholarships based on their state and county. Below we will contrast these income limits to South Carolina’s income limits for our education savings account program (ESA).  Families making 300% or less of the federal poverty line receive priority when applying to this program

In the examples below, each family would qualify for EFTC scholarships, which will include many thousands more families than the priority application limit for our ESA program: just $99,000 for a family of four in 2026.

• A Greenville County family making less than $319,200 per year;
• A Jasper County family making less than $246,900 per year;
• A Richland County family making less than $277,200 per year; and
• A Charleston County family making less than $352,500 per year.

Despite the rapid expansion of state-level school choice programs across the country, the EFTC represents one of the most significant steps forward in the choice movement.  Millions of children will now have the financial support they need to access the educational services and environments that they need to thrive, all without costing the American taxpayer a single dime.