Treasury and the IRS have issued temporary rules for the new federal scholarship tax credit, and they take effect Dec. 1, 2026. Contributions to scholarship groups open a month later, on Jan. 1, 2027. The rules were published in the Federal Register on Oct. 2, and the regulations say they are effective on Dec. 1, 2026.

The credit is a new section 25F nonrefundable federal income tax credit for gifts to scholarship granting organizations, which are charities that pay for elementary and secondary school scholarships. It applies to taxable years ending after Dec. 31, 2026.

For a family, the practical questions are when a gift can be made and whether the state allows it. The IRS says in its Oct. 1 announcement that individuals can claim up to $1,700, and married couples filing jointly up to $3,400, and that contributions begin Jan. 1, 2027. The credit is nonrefundable, so it can reduce tax owed but does not produce a refund beyond that. It is available only in states that have chosen to take part, and the IRS says 30 states have already done so.

This credit is still taking shape, with more state decisions ahead, and The Retirement Money Brief will cover the next step in plain English when it happens.

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What the temporary rules cover

The rules are procedural. They set reporting and recordkeeping requirements for scholarship granting organizations and the elections that states must make to take part. A state’s election is made by its governor, or by another person or agency that state law designates. The state must also supply a list of the organizations in the state that meet the credit’s requirements.

The organizations themselves have a to-do list. They must register electronically through an IRS portal and keep separate section 25F accounts for qualified contributions. They must send donors a written acknowledgment by Jan. 31 after the contribution year and report donor contribution information to the IRS by Feb. 28 each year.

Which states are in

The credit does not reach every taxpayer in the country. A family’s state has to opt in, and the IRS announcement says thirty states have. The announcement does not name them. In January the U.S. Department of Education and Treasury released a fact sheet that named 23 participating states, among them Alabama, Alaska, Arkansas, Georgia, Idaho, Indiana, Iowa and Louisiana. The count has grown since, and the January list is out of date.

A family should not assume a state is in or out from news coverage. The state’s governor, treasurer or education office is the place that knows whether it has opted in and which scholarship organizations it approved.

A companion proposal is still open

The temporary rules came with a notice of proposed rulemaking numbered REG-117199-25, published at the same time. The temporary rules are in force from Dec. 1, while a proposal is a draft that can still change. Together they spell out how the credit will run once gifts begin.

The IRS also describes how the credit scales. By 2030, Treasury estimates, 600 to 700 scholarship granting organizations would manage contributions from more than 11 million taxpayers and fund about 2.2 million scholarships a year. Those figures are projections, not results.

Lining up a gift for 2027

The free place to start is the temporary regulations themselves and the IRS announcement, which describe how the credit works. A taxpayer who wants to give should first learn whether the home state has opted in, then find the list of approved scholarship organizations in that state, because the state’s list is what identifies the organizations that meet the credit’s requirements.

Gifts cannot start before Jan. 1, 2027, so there is time. Taxpayers can use it to decide how much to give, to learn how the state’s list works, and to plan for the acknowledgment letter, which organizations must send by Jan. 31 after the contribution year. The credit is nonrefundable, so a household with little federal income tax may not be able to use all of it. A donor should keep the written acknowledgment with the year’s tax records, since organizations also report donor contribution information to the IRS by Feb. 28 and the two should match.

IRS CEO Frank J. Bisignano said in the announcement: “These rules provide states, scholarship-granting organizations, and taxpayers with the clarity they need to prepare for this new education tax credit.”

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This article was produced with AI assistance and edited for accuracy against the Federal Register and IRS pages linked above.