The Treasury Department and IRS have issued new guidance allowing states to prepare for a federal tax credit program that could save taxpayers up to $1,700 annually on their federal taxes. Revenue Procedure 2026-6, released December 12, 2025, establishes the framework for states to participate in a new federal tax credit for contributions to Scholarship Granting Organizations under the One, Big, Beautiful Bill.
Starting January 1, 2027, individual taxpayers will be eligible to claim a nonrefundable federal tax credit for cash contributions to qualifying SGOs that provide scholarships for elementary and secondary education expenses. The credit is capped at $1,700 per taxpayer, but only applies to contributions made to SGOs operating in states that voluntarily choose to participate in the program.
The new Revenue Procedure introduces an “Advance Election” process, allowing states to commit to participation before they must submit their official list of qualifying SGOs. This gives both states and scholarship organizations additional time to prepare for the program’s 2027 launch. States can submit Form 15714 starting January 1, 2026, to make this advance commitment.
“A covered state is defined as one of the States, or the District of Columbia, that, for a calendar year, voluntarily elects to participate in the credit and identifies SGOs in the State,” according to the IRS announcement. This means state participation is entirely voluntary, and taxpayers in non-participating states will not be eligible for the federal credit, even for out-of-state donations.
How the Federal Tax Credit Works
The federal education tax credit operates differently from traditional charitable deductions. Instead of reducing taxable income, it provides a dollar-for-dollar reduction in federal taxes owed. For taxpayers in higher income brackets, this could represent significant tax savings compared to standard charitable deductions.
The $1,700 limit applies per taxpayer, meaning married couples filing jointly may potentially claim up to $3,400 if both spouses make qualifying contributions. However, the credit cannot exceed the taxpayer’s actual tax liability for the year, making it particularly valuable for those with substantial federal tax obligations.
If a taxpayer’s federal tax liability is less than the credit amount, the unused portion may be carried forward for up to five years. This carryforward provision ensures that taxpayers can still benefit from the credit even in years when their tax liability is reduced through other tax-advantaged strategies.
Impact on Business Owners and High Earners
For business owners and high-earning professionals, this new federal credit adds another tool to their tax planning toolkit. The credit coordinates with existing state-level education tax credit programs, though taxpayers cannot double-dip by claiming both a federal credit and a state credit for the same contribution.
The timing of the program’s 2027 start date allows taxpayers to incorporate this strategy into their broader tax planning approach. Business owners already maximizing contributions to retirement accounts and other tax-advantaged vehicles may find this credit particularly attractive as it operates independently of income-based phase-outs that affect other tax benefits.
SGOs must meet specific requirements to qualify, including operating as 501(c)(3) organizations that are not private foundations. They must provide scholarships specifically for K-12 education expenses such as tuition, tutoring, and other qualifying educational costs for students from low- and middle-income families.
Next Steps in Implementation
The IRS has indicated that additional guidance will be forthcoming, including deadlines for states to submit their official SGO lists and procedures for making elections in subsequent years after 2027. Notice 2025-70 has been issued requesting public comments on the implementation of state SGO lists and certification requirements.
States now have the opportunity to evaluate whether to participate in this federal program. Their decision will directly impact whether taxpayers in their state can access this new federal tax benefit. No states have announced their participation decisions as of the December 2025 guidance release.
For taxpayers interested in this credit, monitoring their state’s decision will be crucial for 2027 tax planning. The voluntary nature of state participation means the availability of this federal benefit will vary significantly by location.