💌 Today’s Thing: New Opportunities for Your Child’s Education Expenses — A Brief Preview on Tax Credits and Scholarship Granting Organizations
Department of Treasury and IRS are seeking comments (in writing) on guidance to implement a new tax credit for elementary and secondary education expenses as contributions to scholarship granting organizations. Under Notice 2025-70, starting on January 1, 2027, individual taxpayers can claim a maximum credit of $1,700 per tax year1. The legal authority for this tax credit is under last summer’s One, Big, Beautiful Bill Act (OBBBA)2. It is listed in the tax code as Section 25F.
The specific details will depend on what state you live in. Since the tax credit is still a year out, here’s a bit of tax clarity for planning future educational spending.
🧾 The deets…clean and quick – Yet another OBBBA tax credit…HOW will this one work?
The points of discussion and potential confusion as 2026 unfolds will be several definitions3:
- eligible students
- covered state
- scholarship granting organization (SGO)
- qualified elementary or secondary education expense
- qualified contribution
This information is useful for your tax planning and budgeting for children’s educational expenses in 2026. The taxpayer must be a citizen or resident of the United States. However, there is a limitation: this is a non-refundable credit that “shall be reduced by the amount allowed as a credit on any State tax return of the taxpayer for qualified contributions.”4 In short, no chance for a double benefit.
My initial read on this – you can claim this tax credit for your donation dollar-for dollar – as opposed to other donations to charitable organizations under IRC §170 which are deductible from taxable income. I’ll touch on a few of the bulleted items above.
🧾 WHO is an “ELIGIBLE STUDENT?
To be qualified, the charitable contribution must be intended for the benefit of an “eligible student” and that definition is a function of two things:
- not greater than 300 percent of the area median gross income
- eligible to enroll in a public elementary or secondary school.
The tax effect of deductions is a function of one’s marginal tax rate – also known as your tax bracket – and are not dollar-for-dollar like tax credits.
🧾 WHICH states have lists of qualified elementary and secondary scholarships?
Each state seeking to voluntarily participate in the federal §25F program must provide to Treasury a list of the SGOs that meet the requirements described in §25F(c)(5) and are listed in the State SGO list. The state must submit its list by January 1 of the calendar year. The Treasury Department will issue additional guidance during 2026 to help covered states and SGOs meet the requirements by the end of this year5.
🧾 WHAT makes for a “Qualified Contribution”?
The answer goes back to the earlier explanation of SGOs. In order for a contribution made by a taxpayer to an SGO in a State to be a qualified contribution eligible for a §25F credit, a State must have voluntarily made an election to participate under §25F and must have identified the SGO as satisfying the requirements of § 25F(c)(5) for the applicable calendar year6.
🧾 WHEN are comments due?
The Internal Revenue Bulletin announcement on November 25 encouraged commenters to submit their comments by going to Regulations.gov and typing “IRS-2025-0466” in the search field by next Friday, December 26. As of this morning, there are over 600 comments. But don’t procrastinate. As reported in FedWeek yesterday7 , the President just announced that next Friday will be recognized as a federal holiday. It has not been determined whether the deadline will be extended to the following business day on Monday, December 29.
There’s the scoop, everyone! Thanks for taking time to check out this week’s edition of the Tax Clarity Newsletter.
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References (6)
1 IR-2025-115, Treasury, IRS request comments on implementation of the new federal tax credit for individual contributions to Scholarship Granting Organizations under the One, Big, Beautiful Bill, November 25, 2025), last accessed December 19, 2025.
2 Public Law 119-21, §70411, 139 Stat. 72 at 215 (July 4, 2025, Tax credit for contributions of individuals to scholarship granting organizations.
3 IRC §25F, last accessed December 19, 2025.
4 Ibid.
5 IR-2025-121, Treasury, IRS allow States to make an Advance Election to participate in the new federal tax credit for individual contributions to Scholarship Granting Organizations under the One, Big, Beautiful Bill, December 12, 2025, last accessed December 19, 2025.
6 IRC §25F, last accessed December 19, 2025.
7 FedWeek, Five-Day Break Granted for Christmas Holiday, 2 Days Excused, December 18, 2025, last accessed December 19, 2025.
DISCLAIMER: The information in this newsletter is derived from public information, provided for education purposes. It is not provided as a financial advisory service and should be relied upon as such. For advice on a specific tax matter, please consult a tax professional.