On 1 October 2026, the Department of the Treasury and the Internal Revenue Service released proposed regulations (REG-108945-26) implementing Section 25F of the Internal Revenue Code, establishing the Education Freedom Tax Credit—commonly referred to as the Federal Scholarship Tax Credit. This landmark provision creates the first federal tax credit incentivizing private contributions to qualified scholarship-granting organizations (SGOs) that fund K-12 private school tuition and related educational expenses for eligible students. The credit equals 100% of qualified contributions up to $5,000 per taxpayer ($10,000 for joint filers), non-refundable but carryforwardable for five years. The proposed rules define eligible students, SGOs, qualified educational expenses, and substantiation requirements, with a 60-day public comment period.
Key Takeaways
- Eligibility and Compliance Framework: SGOs must be 501(c)(3) organizations meeting strict nondiscrimination, financial transparency, and scholarship distribution criteria; donors must obtain written acknowledgments for contributions exceeding $250.
- State Interaction and Limitations: The federal credit operates independently of existing state-level tax-credit scholarship programs, but taxpayers cannot double-dip by claiming both federal and state credits for the same contribution.
Disclaimer: This article is compiled and summarized by the AI based on publicly available information and is for general information purposes only. It does not constitute any form of formal tax advice, legal opinion, or basis for performance. Please consult a qualified professional tax advisor or legal counsel for tax advice.
Source: Read Official Announcement