TL;DR
- The Education Freedom Tax Credit (EFTC) is a federal tax credit of up to $1,700 for donating cash to a qualifying K-12 scholarship granting organization.
- It is a credit, not a deduction: it reduces the federal tax you owe dollar-for-dollar.
- It starts January 1, 2027. Donations made before that date do not earn it.
- It is non-refundable, with a five-year carryforward, and applies to cash gifts only.
- The credit is federal, so it does not depend on your state opting in. State participation decides whether students in that state can receive the scholarships.
What the credit actually does
The Education Freedom Tax Credit lets an individual taxpayer give cash to a qualifying K-12 scholarship granting organization and then subtract that gift, up to $1,700, directly from the federal income tax they owe. Because it is a credit rather than a deduction, the benefit does not depend on your tax bracket. A $1,700 gift reduces a $1,700 tax bill to zero, whether you earn $50,000 or $500,000.
That structure is the whole point. Charitable deductions under §170 are worth more to high earners and nothing at all to the roughly nine in ten filers who take the standard deduction. A credit is worth the same to everyone who owes at least that much tax, which is why the program is designed to draw in ordinary donors rather than only wealthy ones.
The money does not go to a school. It goes to a scholarship granting organization, a nonprofit that must spend at least 90% of what it receives on scholarships and may keep no more than 10% for administration. That organization then awards scholarships to eligible students, whose households must generally fall at or below 300% of area median gross income.
Where the name comes from
“Education Freedom Tax Credit” does not appear in the enacted statute. It began as the name school-choice advocacy organizations used, including ACE Scholarships and the American Federation for Children, and it became the most common way the program was described in public conversation.
It is no longer only an advocacy name. On June 10, 2026 the U.S. Treasury Department titled its guidance announcement “Treasury Previews Education Freedom Tax Credit Guidance,” adopting EFTC in an official federal publication and describing “the launch of the Education Freedom Tax Credit in January 2027.” Virginia’s governor had used the name earlier still, in the first state opt-in announcement. The IRS program page continues to say FSTC, so both names appear on official material. The Treasury press release is archived here.
The IRS calls the same program the Federal Scholarship Tax Credit. Congress passed it as the Educational Choice for Children Act. Tax professionals cite it as §25F, after the section of the Internal Revenue Code where it lives. If you are trying to work out whether two sources are describing the same thing, they almost certainly are, and the four names are mapped side by side here.
What it means for you
The same program lands very differently depending on where you sit.
- If you pay federal income tax: starting in 2027 you can redirect up to $1,700 of what you already owe toward K-12 scholarships instead. You do not need to itemize. You can also adjust your withholding rather than waiting for a refund.
- If you have school-age children: your household may qualify for a scholarship if your income is at or below 300% of area median gross income. Eligibility and qualified expenses are covered here, and the expenses are broader than tuition.
- If you run a school: scholarships follow students, not institutions, so the practical question is which scholarship organizations serve your families. What it means for private schools.
- If you are forming a scholarship organization: you are the layer this entire program runs through, and the compliance rules are specific. The step-by-step guide to starting one and the 90/10 rule and compliance requirements.
Where the states stand
The credit is federal, but each state decides whether to submit a list of scholarship granting organizations to the federal government. That decision determines whether students in the state can receive credit-funded scholarships, not whether residents can claim the credit.
As of 2026-07-14, our tracker counts 30 states and jurisdictions opted in, 1 committed, 14 still undecided, 2 vetoed and 4 declined. The IRS’s own published list has run slightly behind that count, because a state can elect to participate before its paperwork reaches the federal list. The full state-by-state tracker explains each status, and the opt-in process itself is described here.
Four common misconceptions
- “It is a deduction, so it mostly helps wealthy donors.” It is a credit. Its value does not scale with your tax bracket, and you do not need to itemize to claim it.
- “My state opted out, so I cannot claim it.” The credit is federal. Your state’s decision affects whether students in your state can be served, not your ability to claim.
- “It only pays private-school tuition.” Qualified expenses are defined by reference to the Coverdell list at IRC §530(b)(3), which reaches tutoring, books, technology, special-needs services and testing fees. That can include public-school students.
- “I can donate now and claim it.” The credit applies to taxable years ending after December 31, 2026. A gift made in 2026 may still be deductible under §170, but it does not earn this credit. The 2026-to-2027 transition is worth planning around.
