A tax break aimed at helping families cover private and religious school costs is set to take effect at the start of 2027, but it will not be available everywhere. The Internal Revenue Service has confirmed that individual taxpayers will be able to claim a federal credit worth up to $1,700 for cash donations to approved scholarship funds, provided their state has agreed to take part. So far, only a fraction of the country has signed on, and where a household lives will decide whether the credit is on the table at all.
How the New Scholarship Credit Works
The credit comes from a provision inside the sweeping tax law widely known as the One, Big Beautiful Bill, and it targets a narrow kind of giving: cash gifts to nonprofits that fund private-school and religious-school scholarships. Beginning Jan. 1, 2027, an individual filer will be able to claim a nonrefundable credit worth up to $1,700 for contributions made to one of these approved groups, known as Scholarship Granting Organizations, or SGOs. The ceiling applies to cash gifts specifically; the guidance does not extend the credit to donations of property, securities or other in-kind goods.
The provision, cited as Section 70411 and codified as Internal Revenue Code Section 25F, is described in detail on the IRS’s Working Families Tax Cuts guidance. Because the credit is nonrefundable, it can only bring a tax bill down to zero rather than trigger a refund, though the IRS says any unused portion generally carries forward for up to five years. In practice, a filer who donates the full $1,700 but only owes $600 in federal tax that year would not lose the remaining $1,100; it can be applied against tax owed in later years instead.
The credit does not switch on automatically nationwide, and it does not exist yet. A state, or the District of Columbia, first has to elect to participate and send the IRS a list of qualifying scholarship organizations before a resident of that state can give to one of those groups and claim the credit on a federal return. States were allowed to make an advance election for the 2027 tax year, and every participating state, including early electors, must submit an updated list of qualifying organizations to the IRS by Jan. 1 of each year the program runs. A donation made before Jan. 1, 2027 would not qualify, even to an SGO already on an approved list, because the credit itself is not available under the tax code until that date.
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Which States Have Signed On So Far
The IRS’s list of participating states, last reviewed July 27, 2026 and current as of July 24, 2026, shows 30 states have made the advance election: Alabama, Alaska, Arkansas, Colorado, Florida, Georgia, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, North Dakota, North Carolina, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, West Virginia and Wyoming.
That leaves roughly 20 states, plus the District of Columbia, off the current list, among them some of the country’s most populous, including California, New York, Illinois and Pennsylvania. The credit turns on where the scholarship organization is located and vetted, not on the donor’s own address, so whether a filer can claim it depends on whether both their state and the group they want to support have cleared the IRS process.
What the $1,700 Ceiling Means for a Family Budget
For a household that already gives to a school scholarship fund, or is weighing whether to start, the credit works differently from an ordinary charitable deduction. A deduction only lowers taxable income by whatever share applies at a filer’s bracket, while a credit lowers the tax bill itself, dollar for dollar, up to the $1,700 cap. The five-year carryforward the IRS describes means a filer who cannot use the full amount against a single year’s tax bill does not simply lose the difference; it can be applied against future years’ taxes as long as the state and the receiving organization remain on the qualifying list.
None of this changes what counts as a qualifying gift. The IRS defines an SGO narrowly, as an organization that awards scholarships specifically for elementary and secondary education expenses, so contributions to a school’s general operating fund or to charities serving other purposes are not what the new credit is built around.
Why the Sign-Up List Keeps Shifting
The roster of participating states has moved quickly since the program was created. In a June 8, 2026 release, the IRS reported that 27 states had elected to participate, with then-IRS Chief Executive Officer Frank Bisignano calling the response “encouraging” and saying the agency was “hopeful that additional states will decide to participate.” By the time of the July update, three more states had joined, bringing the total to 30.
Participation remains entirely voluntary, and the IRS has cautioned that some state websites may not yet reflect a state’s current status, since the agency updates its own list as elections are processed. A state that has not yet opted in has not blocked residents from donating to scholarship charities; it has only kept those particular gifts from generating the new federal credit until the state files a qualifying list with the agency.
The Programs That Only Pay When Someone Files
A credit that exists only where a state chose to take part is a familiar shape in household money: the help is real, but nothing moves until a form is filed. The same holds for a set of benefit programs older households leave untouched every year. Medicare Savings Programs cover the Part B premium for enrollees with limited income, LIHEAP helps with heating and cooling bills, and state unclaimed property offices still hold accounts that were never returned to their owners.
The guide runs 63 pages across 11 programs, with the 2026 income limits for each one and a printable tracker for the paperwork they require.
Read the 11 programs and the paperwork each one asks for in The Benefits Checklist.
This article was produced with AI assistance and reviewed by a human editor. Figures are linked to their primary sources; where a claim could not be verified from the public record, we say so.
