The federal tax credit legislation for gifts to scholarship-granting organizations (SGOs) included in the House-passed version of the budget reconciliation bill represents the best chance to bring education freedom to all 50 states by 2026.
The measure would create a dollar for dollar federal tax credit for donations to groups like Children’s Scholarship Fund (CSF) and CSF’s partner programs across the country, some of which already run state tax credit programs, including CSF New Hampshire, CSF Philadelphia, the Today and Tomorrow Educational Foundation in St. Louis, and ACE Scholarships, which administers tax credit programs in Arkansas, Kansas, Louisiana, and Montana.
How the tax credit would work: The version of the bill passed by the House calls for up to $5 billion in available tax credits each year for individual taxpayers. A portion of the tax credit dollars would be allocated to be raised by SGOs in each state so that no state is left out. The remaining tax credits would be awarded by the U.S. Treasury Department on a first-come, first-serve basis as donors apply for them. Another version of the measure that’s been introduced in the Senate has a $10 billion cap on tax credits per year, and would allow corporations as well as individuals to participate.
What the tax credit could mean for you: Starting in 2026, individuals – at no additional cost – could supercharge their giving by an amount up to 10% of their adjusted gross income or $5,000 (whichever is higher). Under the measure, taxpayers could apply for the tax credit and, if approved, direct part of what they owe the IRS to an SGO such as CSF in exchange for a 100% dollar for dollar credit on their federal income taxes.
For example, if your adjusted gross income is $250,000, and your federal tax liability is $35,000, you could make a $25,000 gift to CSF (10% of $250,000), reducing your tax liability to $10,000 owed to the IRS. Instead of paying taxes to the federal government, you could fund scholarships and make even more of a difference in children’s lives!
If you are currently giving CSF $2,500 a year to underwrite the average cost of a scholarship for one child, a $25,000 tax credit donation would allow you to help ten more children without a penny more in out of pocket expenses! That’s ten more lives changed for the better!
In summary: If enacted, this tax credit could be a major boost for education freedom, at least temporarily increasing the funds available for organizations like CSF and our partner programs across the country to award scholarships, giving many more parents a choice and children a chance. There is still a long way to go before it becomes law, but no measure to truly expand educational opportunity and choice has ever come this far before at the federal level and that needs to be celebrated. We will keep you posted as the process unfolds.
Questions?: Check out our FAQs for more information or please email Darla Romfo, President and CEO, or Michele Mitola, Vice President of Strategic Planning and Development, if you have any questions about the federal tax credit and what it could mean for you and your charitable giving.