IRS Unveils New Education Tax Credit Guidance

The Internal Revenue Service (IRS) has released guidance that sets the stage for an important education tax credit set to launch in 2027.

According to the IRS, the Treasury Department will permit states to enroll early in this new program, which is part of a larger federal tax initiative. This new program allows donors to receive a federal tax credit when they contribute to organizations that offer scholarships.

This early enrollment gives states the chance to get ready for the benefit ahead of time and helps individuals who contribute to scholarship programs lower their federal tax bills.

Why This Matters

This initiative originates from the “One Big Beautiful Act” (OBBBA) and aims to encourage donations to Scholarship Grant Organizations (SGOs) that support low- and moderate-income K-12 students.

The new tax measure allows a non-refundable federal tax credit of up to $1,700 per person, which will influence both individual and corporate tax strategies as well as state education policies. However, access to the credit will hinge on decisions made at the state level, which could create variations in availability nationwide.

Key Information

Recently, the Treasury Department and IRS released a statement outlining the procedures that states, including Washington, D.C., can follow to participate in the new federal tax credits for the 2027 calendar year.

This credit will be available to individual taxpayers who make cash donations to eligible SGOs, as defined by the OBBBA.

Eligible taxpayers will be able to claim this non-refundable tax credit for contributions to SGOs that provide scholarships for educational expenses starting January 1, 2027.

A crucial requirement is that the SGO must be located in a “covered state,” meaning a state that willingly decides to participate and submits a list of eligible SGOs to the IRS.

Donations to organizations in states that don’t participate or from outside those states won’t qualify for the federal credit.

Additionally, the SGO must be recognized as tax-exempt under Section 501(c)(3), cannot be classified as a private foundation, and must allocate funds toward K-12 educational costs aimed at students from households earning less than three times the area median income.

The pre-election procedure enables states to commit to participation in 2027 before submitting their formal lists, giving them and the scholarship-distributing organizations more time to prepare.

Form 15714, termed “Pre-election for Participation Under Section 25F 2027,” is available on the IRS website. Filing can occur between January 1, 2026, and a deadline to be set by future IRS guidance.

Public Perspectives

The IRS clarified that a covered state is defined as one that opts to participate in the credit for a calendar year and identifies an SGO within its jurisdiction.

North Carolina Governor Josh Stein expressed his optimism about the federal Scholarship Donation Tax Credit program benefiting public school students in his state. He mentioned that once the federal guidelines are clear, he intends to advocate for investments in after-school programs, tutoring, and other resources for those most in need.

Forward Outlook

Further rules, processes, and clarifications regarding filing deadlines and selection methods for future years are expected in upcoming IRS updates.

Notice 2025-70 is currently open for public input on the certification and management of State SGO lists to enhance compliance and effectiveness.

The IRS also stated that future guidance will elaborate on how states can hold elections to join the new tax credit for the 2027 calendar year while submitting their state SGO list, including pre-elections for participation in later years.