A New $1,700 Federal Tax Credit for School Donations — and New York Didn’t Sign Up

The Federal Scholarship Tax Credit is a new federal income tax credit created by the One, Big, Beautiful Bill and written into Internal Revenue Code Section 25F. It lets an individual claim up to 1,700 dollars for cash given to a Scholarship Granting Organization, a nonprofit that funds K-12 scholarships. The program goes by several names. You will see it called the Education Freedom Tax Credit, the Educational Choice for Children Act credit, or the FSTC, and they all point to the same Section 25F credit enacted in July 2025 as part of the wider One, Big, Beautiful Bill provisions. The mechanics are simple to state and easy to misjudge. A deduction lowers the income you get taxed on. A credit comes straight off the tax you owe. So 1,700 dollars of deduction saves a top-bracket donor roughly 629 dollars, while 1,700 dollars of credit hands back the full 1,700 dollars. That is the entire reason a number this small is worth a second look. Two limits shape how the credit behaves. First, it is nonrefundable, which means it can wipe out tax you owe down to zero but it will not generate a refund beyond your liability. A donor with only 900 dollars of federal income tax for the year cannot pull the full 1,700 dollars back in cash. Second, the credit does not begin until January 1, 2027, so a gift made in 2027 shows up on the 2027 return filed in 2028. There is nothing to claim on a 2026 return. Here is a worked example. Say a married couple in the top bracket owes 40,000 dollars of federal income tax in 2027 and gives 1,700 dollars to a qualified Scholarship Granting Organization in a participating state. Their tax bill drops to 38,300 dollars. They gave 1,700 dollars and got 1,700 dollars back against tax, so the gift cost them nothing in net federal terms, setting aside any state treatment. The common mistake is treating this like the education credits people already know. The American Opportunity and Lifetime Learning credits described in the IRS education credits guidance are for your own tuition and are claimed on Form 8863. Section 25F is different. It rewards a donation to a scholarship nonprofit, not your own schooling, and it lives in a separate part of the law. An edge case to flag now. The donation has to go to a Scholarship Granting Organization the IRS recognizes in a state that elected to participate, so confirming the organization is on the list comes before writing the check. We would rather verify the roster than unwind a credit later. If you give to education and want to see whether this fits, our tax strategy consulting team folds it into the annual giving plan, and our individual tax return group claims it cleanly when the 2027 gift lands. Start the planning conversation at our new client inquiry page well before the year it counts, because the planning window is the part you control.

Yes, a New York resident can claim the Federal Scholarship Tax Credit, but only if they pay attention to one rule that catches almost everyone. The credit follows the Scholarship Granting Organization’s state, not the donor’s home state. New York has not made the advance election to participate, so a New Yorker cannot fund a New York scholarship organization and claim the credit on that gift. That does not lock New York residents out. It just redirects where the money has to go. To earn the 1,700 dollars, a New York donor would give to a recognized Scholarship Granting Organization in a state that did opt in, such as Florida or Texas. The scholarship dollars then support K-12 students in that participating state. The donor’s residence does not disqualify them. The organization’s state does. As the IRS explained in its announcement that more than half the states signed up, participation is a state-level choice, and the donor simply has to route the gift to a participating-state organization recognized under the Section 25F program. Work through a real example. A New York couple wants the credit in 2027. They cannot give to a Brooklyn-based scholarship fund and claim it, because New York sat out. Instead they give 1,700 dollars to a qualified Scholarship Granting Organization in Florida. The gift is eligible, the credit comes off their 2027 federal tax, and the scholarship benefits Florida students. The same 1,700 dollars given locally in New York would earn nothing under Section 25F. It helps to understand why the credit attaches to the organization at all. A state has to submit a list of qualified Scholarship Granting Organizations to the IRS before any gift to an organization in that state can earn the credit. New York has not submitted such a list, so no New York organization currently appears on the federal roster. That is a different thing from saying New Yorkers are barred. The federal credit does not test where you live. It tests where the organization sits and whether that state did the paperwork to participate. The common mistake is reading the headline that New York did not opt in and concluding the credit is off the table for New Yorkers. That is wrong, and it costs people a clean credit. The opposite mistake is assuming a gift to any out-of-state nonprofit qualifies. It has to be a Scholarship Granting Organization the IRS recognizes in a participating state, and a regular charitable gift handled under the ordinary charitable contribution rules is a different thing entirely. An edge case worth watching. New York, New Jersey, and Connecticut can still elect in before 2027, and the list the IRS published as part of the broader One, Big, Beautiful Bill provisions is a snapshot rather than a final count. If a tri-state government joins, local gifts would qualify and the calculus changes for residents who would rather keep scholarship dollars close to home. This is the kind of moving target our tax strategy consulting practice tracks, and our tax compliance team confirms the organization is eligible before you give. If you live in the tri-state area and give to education, raise it with us at our new client inquiry page so the 2027 gift goes to the right place the first time, not after the check has cleared.

As of the IRS announcement, a majority of states had made the advance election to participate in the Federal Scholarship Tax Credit. The IRS reported more than half the states signed up, a roster concentrated in the South and Mountain West, including Florida, Texas, Georgia, Ohio, Tennessee, South Carolina, Indiana, and Utah. New York, New Jersey, Connecticut, California, and Illinois were not on the list at the time of the IRS announcement. State participation has continued to grow since, so the count is a moving figure, not a fixed one. The reason participation matters is structural. A state has to do two things before any taxpayer can give to a Scholarship Granting Organization there and claim the credit. It has to make an advance election to participate, and it has to hand the IRS a list of qualified Scholarship Granting Organizations. Until both happen, a gift to an organization in that state earns nothing under Section 25F. This is why the participating list and the organization list are the first things to check in 2027. A worked example shows why the roster, not the donor, controls the outcome. Two donors each give 1,700 dollars in 2027. The first gives to a recognized Scholarship Granting Organization in Texas, a participating state, and claims the full 1,700 dollar credit. The second gives to a worthy scholarship nonprofit in a state that never elected in, and claims nothing under Section 25F, even though the gift is otherwise identical. The only difference is whether the state opted in and the organization is on the published list. There is also an income test baked into the program that donors should know about, even though it falls on the scholarship recipients rather than the giver. A Scholarship Granting Organization may only award scholarships to students whose household income falls under a ceiling tied to the area median, and the scholarship dollars have to go toward qualified K-12 education expenses. That eligibility design is part of why the IRS keeps a controlled list of organizations rather than treating every education charity as qualifying. The gift has to flow through an organization that meets those rules in a state that signed up. The common mistake is treating an early list as permanent. States can still elect in, and the list the IRS published is a snapshot. A state that was absent when you first looked may have joined by the time you give. The opposite mistake is assuming every nonprofit in a participating state qualifies. The organization itself has to be a recognized Scholarship Granting Organization on the state’s submitted list, not simply a charity that happens to fund education and accept gifts under the general charitable rules. An edge case to keep in mind. Because the program was created under the broader One, Big, Beautiful Bill provisions, guidance is still maturing, and the practical roster you rely on should be the current IRS list in the year of the gift, not a news article from months earlier. Our tax compliance team confirms both the state’s participation and the organization’s standing before a client gives, and our tax strategy consulting group times the gift to the right year. Bring your 2027 giving plan to us at our new client inquiry page so we can check the roster before you commit, rather than after.

A deduction reduces the income you are taxed on. A credit reduces the tax itself. That single difference is why the Federal Scholarship Tax Credit is worth understanding even though the 1,700 dollar cap looks modest. Dollar for dollar, a credit is the more valuable of the two, because it returns the whole amount rather than a fraction tied to your bracket, as the Section 25F program page spells out. Put numbers on it. For a donor in the top 37 percent federal bracket, a 1,700 dollar charitable deduction lowers taxable income by 1,700 dollars, which saves about 629 dollars in tax. The same 1,700 dollars run through the Section 25F credit comes straight off the tax bill, returning the full 1,700 dollars. That is a difference of more than 1,000 dollars on an identical gift, simply because of how the benefit is structured. A worked example brings the two side by side. A donor gives 1,700 dollars to education. Path one treats it as an ordinary itemized charitable deduction under the charitable contribution deduction rules and saves 629 dollars at the top rate. Path two routes the same 1,700 dollars to a qualified Scholarship Granting Organization in a participating state and claims the credit, returning 1,700 dollars against tax. Same out-of-pocket gift, very different federal result. Bracket matters more than people expect with a deduction, and not at all with this credit. A donor in the 24 percent bracket gets only about 408 dollars from a 1,700 dollar deduction, while a top-bracket donor gets 629 dollars from the same deduction. The credit treats both donors identically. Each one receives the full 1,700 dollars against tax owed, assuming they have at least that much liability. That flatness is what makes a credit attractive to a broad range of donors rather than only the highest earners. The common mistake is assuming you can take both the credit and a federal charitable deduction for the same dollars. The statute is built to keep taxpayers from double-dipping, so do not plan on stacking a Section 25F credit and a charitable write-off on the identical contribution. Treat the 1,700 dollars as a credit and do not count it twice. This is also a different animal from the tuition-based education credits in the IRS education credits guidance, which apply to your own schooling rather than a donation. An edge case sits in the nonrefundable nature of the credit. Because it is nonrefundable, it only delivers full value if you owe at least that much federal income tax. A donor with very low liability gets less than the headline 1,700 dollars, since the credit cannot create a refund beyond tax owed. This is also why the credit complements, rather than replaces, larger giving tools. It sits alongside the bigger strategies, not instead of them. Our tax strategy consulting team sizes the credit against the rest of a giving plan, and our individual tax return group makes sure it is claimed and not double-counted. If you want the math run on your own numbers before 2027, start at our new client inquiry page.

You can start donating for the Federal Scholarship Tax Credit on January 1, 2027. That is the first day a qualifying gift to a Scholarship Granting Organization generates the credit, as set out on the Section 25F program page. There is nothing to claim on a 2026 return, so the value of acting now is planning, not giving. A contribution made during 2027 produces the credit on the return you file in 2028. The planning steps are concrete. First, decide whether a participating-state scholarship gift fits your overall charitable goals, because the credit is capped at 1,700 dollars and is nonrefundable, so it works best as one clean piece of a larger plan rather than the centerpiece. Second, identify a Scholarship Granting Organization that the IRS recognizes in a state that elected to participate, using the current list tied to the program. Third, confirm your expected 2027 federal tax liability is high enough to absorb the full credit, since a nonrefundable credit cannot exceed the tax you owe. A worked example shows the timing. A client expects roughly 50,000 dollars of federal income tax in 2027. In December 2026 we identify a qualified Scholarship Granting Organization in a participating state and pencil in a 1,700 dollar gift. The client makes the gift in early 2027, and we claim the 1,700 dollar credit on the 2027 return filed in 2028. The 2026 return is untouched, because the credit does not exist yet for that year. It is worth coordinating this with the rest of the year-end picture rather than treating it as a standalone move. If a client is already bunching charitable gifts, funding a donor-advised account, or managing income around a bracket threshold, the 1,700 dollar credit slots into that conversation. The gift has to clear by December 31, 2027 to count for that year, so a December gift works while a January gift pushes the credit a full year later. We map the credit against the rest of the plan so it does not collide with a charitable deduction the client also wants. The common mistake is rushing a gift in 2026 expecting a credit. A 2026 contribution earns nothing under Section 25F, because the credit starts in 2027. The opposite mistake is waiting until the last week of 2027 and discovering the organization you wanted is not on the participating-state list, leaving no time to redirect. If you instead want a current-year write-off, a plain charitable gift under the charitable contribution rules is the separate path, though it is worth far less per dollar than this credit. An edge case to plan around. Because the program was enacted under the wider One, Big, Beautiful Bill provisions and guidance is still settling, the right organization list to rely on is the current one in the year of the gift. We build the gift into the year-end review so it lands in the correct year against enough tax to use it fully. Our tax strategy consulting team handles the timing, our tax compliance group verifies the organization, and our wider service team coordinates the filing. Bring your 2027 giving plan to us at our new client inquiry page before the year it counts.