There is cause for celebration! A federal tax credit for donations to scholarship granting organizations (SGOs) was included in the budget bill that was signed into law on July 4th. This is the first school choice legislation that has passed at the national level, making it a true milestone for education freedom.
The measure creates 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 new tax credit will take effect in 2027, and is permanent, with no date to expire. It also does not have an overall cap (so the tax credits will not “run out”). However, the maximum tax credit amount for each individual is $1,700 per year. The U.S. Treasury Department will oversee the federal tax credits.
What the tax credit could mean for you: Starting in 2027, as an individual taxpayer – at no additional cost – you could supercharge your giving by directing up to $1,700 of what you owe the IRS to a qualified SGO in exchange for a 100% dollar for dollar credit on your federal income taxes.
For example, a taxpayer who owes $10,000 to the IRS could make a $1,700 gift to an SGO, reducing their tax liability owed to the IRS to $8,300. The $1,700 otherwise owed to the IRS would fund scholarships, making more of a difference in children’s lives without costing a penny more in out of pocket expenses!
State Opt-In: Additionally, under the newly passed bill, states will have to opt-in and provide a list of qualified scholarship granting organizations (SGOs) eligible for donations to the U.S. Treasury Department. Individuals in any state will be able to give to qualified SGOs and get a dollar-for-dollar federal tax credit of up to $1,700, but the SGO will only be able to use the contribution for scholarships in a state that has opted in. Details about the opt-in process and the approval process for eligible SGOs will be provided by the Treasury Department in their forthcoming regulations.
In summary: This tax credit could be a major boost for education freedom, permanently 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. We look forward to sharing further updates on the new federal tax credit initiative as they are determined.
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.