Education Freedom Tax Credit: states face 2027 deadlines

WASHINGTON: The Treasury Department and the Internal Revenue Service have released the rules for the Education Freedom Tax Credit, setting out how states, donors and scholarship groups will use the new federal school choice program starting Jan. 1, 2027.

Under the Education Freedom Tax Credit, individual taxpayers can claim a dollar-for-dollar, nonrefundable federal tax credit of up to $1,700 for donations to scholarship granting organizations, which fund scholarships for K-12 expenses such as private school tuition and tutoring. Married couples filing jointly can claim up to $3,400.

Treasury issued two documents on Oct. 1: temporary regulations on state opt-in, scholarship group lists, registration and donor reporting; and proposed regulations on donor claims, scholarship awards, student eligibility and enforcement. Thirty states have already opted in, according to the IRS.

Deadlines states face under the Education Freedom Tax Credit

State leaders face three federal deadlines under the Education Freedom Tax Credit. The first is a chance to shape the final rules: Treasury is taking public comments on the regulatory package through Dec. 1, 2026, with a public hearing set for Dec. 15 in Washington, D.C.

The second deadline decides participation. Any state that wants in for 2027 must file an advance election on IRS Form 15714 by 11:59 p.m. on Jan. 1, 2027, signed by the governor or a designated official. Missing it means no child in that state can receive scholarships under the credit in 2027.

The third deadline completes the election: each participating state must submit a certified list of scholarship granting organizations through the IRS state portal by Feb. 15, 2027. A state that files the election but misses the list cannot take part, and once a list is submitted, the election cannot be revoked for the rest of the calendar year. Treasury has not said when the portal will open.

For later years, advance elections run Jan. 2 to Sept. 30 of the preceding year. Twenty states have not yet opted into the Education Freedom Tax Credit; their governors can still file for 2027 by the Jan. 1 deadline.

How the Education Freedom Tax Credit works

The Education Freedom Tax Credit is aimed at donors. A taxpayer who gives to a scholarship granting organization gets a federal tax credit equal to the donation, up to the cap. The organizations then award scholarships that families spend on qualifying K-12 expenses.

The Education Freedom Tax Credit rules bar states from adding requirements stricter than the federal statute, or from excluding groups based on the type of school or expenses their scholarships support. A state cannot keep a group off its list because it funds religious education, and it cannot exclude groups that plan to fund public school students' expenses. States must confirm that groups meet federal requirements, review their audits and filings, and prevent fraudulent or duplicative awards.

The statute requires scholarships to go toward a qualified elementary or secondary education expense, which turns on how state law defines a school. One open question is whether homeschools, microschools and hybrid programs count: the proposed rules suggest students in those settings could be ineligible in states that treat home education as an alternative to school rather than a school itself.

What the America First Policy Institute advises

The America First Policy Institute, which analyzed the Education Freedom Tax Credit rules on Oct. 22, urges states to treat homeschools, microschools and other non-traditional arrangements as schools for purposes of the credit, either by amending state law narrowly or by asking Treasury to interpret the statute that way in coming guidance.

The institute also advises states to focus the credit on new school models, simplify qualification for new scholarship groups, and let families combine the federal credit with state school choice awards and 529 savings plans. Its model bill, the Every Dollar for Every Child Act, is designed to let families stack those sources.

The institute notes that of the 30 states that have opted in, 14 run state tax-credit scholarships, five offer education savings accounts funded by tax credits, and seven have other forms of private school choice. Because eligibility and allowable expenses differ across programs, states will need to decide how the federal tax credit coordinates with what they already offer.

The regulations are open for comment through Dec. 1, and the IRS state portal is expected to open before the Feb. 15 list deadline.