Treasury, IRS Set Rules for New Federal Scholarship Tax Credit
Temporary and proposed regulations under Section 25F detail a $1,700-per-donor federal credit for K-12 scholarship donations starting January 1, 2027, with comments due December 1, 2026.
Treasury and the IRS issued temporary regulations (T.D. 10057; Temp. Treas. Reg. §§ 1.25F-1T, 1.25F-4T, 1.25F-5T) and proposed regulations (REG-117199-25) implementing Section 25F, the federal credit for cash contributions to scholarship-granting organizations, up to $1,700 per individual and, on the proposed reading, $3,400 for joint filers who each contribute. The credit begins January 1, 2027; comments are due December 1, 2026, and reliance is permitted until final rules issue. Treasury estimates the program will shift more than $26 billion annually.
Counsel should note how unusually operational the first-year rules are: state election mechanics and certified SGO lists (30 states elected as of September 14), the 90 percent spending test and segregated-account safe harbor, "located in a state," multistate SGOs, income verification, annual audit duties, unique donor-number reporting, and "school." Two positions are worth testing against clients: spouses filing jointly are treated as separate taxpayers, and state credits are subtracted before the $1,700 cap and allocated first to undesignated gifts, letting many donors claim both.
Next steps are designation and eligibility design before January 1, state list deadlines (February 15, 2027 for 2027), comment drafting before December 1, and Treasury's promised Section 530 guidance on qualified expenses.