A New Way to Cut Your Tax Bill While Helping Kids: The Education Freedom Tax Credit

Looking for a smarter way to trim your federal taxes starting in 2027? Say hello to the Education Freedom Tax Credit, also known as the Federal Scholarship Tax Credit under . This new federal program lets you support K-12 education and get a dollar-for-dollar reduction in your federal income tax at the same time. That is a win for you and a win for families seeking school options.

Here's How It Works

Starting January 1, 2027, eligible U.S. taxpayers can make cash contributions to approved Scholarship Granting Organizations (SGOs) and claim a dollar-for-dollar federal tax credit for the amount given .

The credit is capped at $1,700 for individual taxpayers and $3,400 for married couples filing jointly. If your credit exceeds your tax liability in a given year, no problem. Unused credits can be carried forward for up to 5 years.

SGOs are nonprofit organizations that use your contributions to fund K-12 educational scholarships for students.

What the Scholarships Can Cover

Families receiving SGO scholarships can use the funds for a wide range of K-12 education costs, including:

• Private or religious school tuition and fees

• Academic tutoring and extended-day programs

• Special-needs educational services and therapies

• Books, supplies, computers, curriculum, and transportation

One Important Catch: States Must Opt In

Taxpayers in all 50 states can contribute and claim the credit. However, governors must opt in for students and families in their state to actually receive and use the resulting scholarships. Students must also meet the eligibility guidelines set by their participating state. One more rule to note: contributions cannot be earmarked for a specific child, so you are supporting the scholarship pool, not hand-picking a recipient.

Talk to your tax and wealth management pros to see how this fits into your particular situation.

Quick Answers (FAQ)

• Is this a deduction or a credit?

  It is a credit, which is better. A deduction reduces your taxable income, while this credit reduces your tax bill dollar for dollar.

• Can I get a refund if the credit is bigger than what I owe?

  No. The credit is nonrefundable, meaning it can reduce your tax liability to zero but not below it. However, any unused amount carries forward for up to 5 years.

• How much can I claim?

  Up to $1,700 per individual or $3,400 for married couples filing jointly.

• Can I direct my contribution to a specific student?

  No. Contributions cannot be earmarked for specific individual children. The SGO awards scholarships based on state eligibility rules.

• Can I claim the credit if my state has not opted in?

  Yes. Taxpayers in all 50 states can contribute and claim the credit. The state opt-in only affects whether students in that state can receive and use the scholarships.

• When does this start?

  The credit is available for qualifying contributions made on or after January 1, 2027.