New $1,700 School Scholarship Tax Credit: Give in January

Every December for the past six years, Danielle and Marcus have written a $3,400 check to a diocesan scholarship foundation that helps families pay tuition at about a dozen Catholic schools around Tampa Bay. They take the standard deduction, so until this year that gift earned them nothing at tax time. (They're a composite, but plenty of families give exactly like this.) If they mail the same check on January 4, 2027 instead of December 15, 2026, a brand-new federal scholarship tax credit could hand the whole $3,400 back to them.

The timing matters because of a credit Congress created last year and Treasury and the IRS filled in with proposed rules on October 1, 2026. Starting January 1, gifts to approved K-12 scholarship groups earn a dollar-for-dollar credit against your federal income tax, up to $1,700 per person. A gift made a few weeks earlier gets, at best, an ordinary deduction worth a fraction of that.

If you give to school scholarship funds, or you've been wondering whether to start, this is the year to look at the calendar before you write the check.

What the new credit does

The credit comes from Section 25F of the tax code, which Congress added in the One Big Beautiful Bill Act signed July 4, 2025. The IRS calls it the Federal Scholarship Tax Credit. The law describes it as a credit equal to your "qualified contributions" for the year, capped at $1,700.

A deduction lowers the income you're taxed on, so in the 22% bracket a $1,700 deduction saves you $374. A credit comes straight off your tax bill. Give $1,700 to a qualifying scholarship group and your federal income tax drops by $1,700, which means the gift costs you nothing beyond the wait to get it back.

The statute itself caps the credit at $1,700 for "any taxpayer" and doesn't mention joint returns. The IRS filled that gap in its October 1, 2026 release on the proposed regulations (IR-2026-117), which says married couples filing jointly can claim a combined credit of up to $3,400. That reading comes from proposed rules, so check the final regulations before you count on the full $3,400 for a couple. The credit is nonrefundable, so it can wipe out tax you owe but can't generate a refund beyond that. Any unused amount carries forward for up to five years.

The law applies to taxable years ending after December 31, 2026. In plain terms, contributions count starting January 1, 2027, and you'll claim the credit on the 2027 return you file in early 2028.

Why a December gift loses out

Go back to Danielle and Marcus. Their annual $3,400 gift is cash to a 501(c)(3) public charity, so in 2026 it qualifies for the new above-the-line charitable deduction for people who don't itemize. That deduction is capped at $2,000 for a married couple. In the 22% bracket, $2,000 of deduction is worth $440, and the other $1,400 of their gift gets no tax benefit at all.

If they hold the same check until January and the foundation shows up on Florida's approved list, the math changes completely. Their 2025 return showed about $4,400 in federal income tax after their child tax credits, so they owe enough to absorb a full $3,400 credit. The gift's after-tax cost drops from $2,960 to zero.

A single filer runs the same comparison at half the scale. Give $1,700 in December and the most you can deduct is $1,000, worth $220 at 22%. Give it in January to a qualifying group and the credit is $1,700, so waiting saves you $1,480.

The trade-off is cash flow. A January 2027 gift doesn't pay off until you file in 2028. If that 15-month gap bothers you, Form W-4 lets you account for credits you expect, so you could trim your 2027 withholding by roughly the credit amount and get the money back through your paychecks. Only do that once the gift is made and you've confirmed it qualifies.

Which states are in, and why it matters even if yours isn't

States have to opt in. Each participating state's governor, or an official the state designates, makes the election and sends Treasury a list of qualifying scholarship granting organizations, or SGOs. Under the statute, those lists are due by January 1 each year, or as early as practicable for the first year.

On June 8, 2026, the IRS announced that 27 states had signed up: Alabama, Alaska, Arkansas, Colorado, Florida, Georgia, Idaho, Indiana, Iowa, Louisiana, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, West Virginia and Wyoming. When the proposed rules came out October 1, Treasury Secretary Scott Bessent put the count at 30.

If your state isn't on the list, you can still claim the credit. The October 1 IRS release says taxpayers may contribute to an eligible SGO regardless of where they live. A donor in Pennsylvania or Illinois could give to an approved group in Ohio and take the full credit. The catch, as Newsweek noted in a June 9 rundown of the states that hadn't joined, is that the money then funds students in another state. Each SGO can only fund scholarships inside the state that listed it.

The fine print before you give

Several rules can turn a "free" gift into an ordinary donation, and most of them come down to where the money goes.

The first is the approved list. The credit only applies to cash given to an SGO that appears on a participating state's list, and the first lists aren't final until around January 1. The IRS says taxpayers can generally rely on an organization's inclusion on its SGO list, so look the group up there before you send anything. A school's own tuition-assistance fund often won't qualify. The law requires an SGO to be a 501(c)(3) public charity that serves 10 or more students who don't all attend the same school, and it has to spend at least 90% of its income on scholarships. If I were Danielle, I'd call the diocesan foundation this week and ask whether it has applied to be on Florida's list, because a "yes" in November beats a surprise at tax time.

The gift also has to be cash. Stock or a donated laptop won't earn the credit. SGOs are also barred from earmarking contributions for any particular student, so you can't route $1,700 through a scholarship group to cover your own child's tuition.

You also lose the deduction on whatever earns the credit. The statute says a contribution that earns the credit can't also be treated as a charitable contribution for deduction purposes. According to a July 9, 2026 analysis by the accounting firm Forvis Mazars, your charitable deduction has to be reduced by the credit amount. If you give more than $1,700, only the portion that earns the credit loses its deduction.

State credits get netted out too. Some states, Georgia among them, already run their own scholarship tax credits, and Forvis Mazars notes that the federal credit shrinks dollar for dollar by any state credit you receive for the same contribution, so you can't collect twice on one gift.

Last, you need a big enough tax bill. Because the credit is nonrefundable, a retiree or young family with a small federal tax bill may not be able to use all $1,700 in one year. If you owe $1,000, you'd use $1,000 of the credit and carry the remaining $700 forward, where it can sit for up to five years before it expires.

Who the scholarships are for

The money is meant for K-12 students from low- and middle-income households. Under the law, an eligible student comes from a household with income no higher than 300% of the area median gross income and has to be eligible to enroll in a public school. Scholarships can cover private school tuition, tutoring, special-needs services, books, supplies and computers.

That income limit is generous. Treasury and the IRS estimate that about 96% of children in participating states would qualify, and they project that by 2030 the program could draw more than 11 million taxpayers and nearly $26 billion in contributions a year, funding up to 2.2 million scholarships.

Plenty of people dislike the program, mainly because it moves federal tax money toward private school tuition, and in Newsweek's June count 23 states, including California, Pennsylvania and North Carolina, still hadn't opted in. I'm not going to referee that fight here. The tax mechanics work the same way for every donor either way, and you should know them before you write your usual December checks.

Bottom Line

The Federal Scholarship Tax Credit turns up to $1,700 per person ($3,400 for a married couple) of cash gifts to approved K-12 scholarship groups into a dollar-for-dollar federal tax cut, but only for gifts made on or after January 1, 2027. A gift made this December gets, at most, the $1,000 or $2,000 non-itemizer deduction. Here's what to do now:

1. Look at any year-end giving you planned for school scholarship funds and decide whether $1,700 (or $3,400 for a couple) of it should move to the first week of January.
2. Ask the organization whether it expects to be on a participating state's SGO list for 2027, and confirm it on the IRS list before you give.
3. Pull up your 2025 return and check the total tax line after credits, so you know whether you owe enough to use the full credit in one year.
4. Keep the rest of your 2026 giving on schedule and capture the non-itemizer deduction ($1,000 single, $2,000 joint) with gifts to other public charities before December 31.