A New Tax Break for Funding Scholarships Starts in 2027

Donors can claim a federal tax credit of up to $1,700 for cash gifts to qualifying scholarship charities — here’s what to know before you give.

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Starting January 1, 2027, taxpayers can claim a nonrefundable federal tax credit of up to $1,700 for cash donations to certain scholarship charities. The tax break was created by the One Big Beautiful Bill Act (OBBBA), and the Internal Revenue Service (IRS) published the detailed rules on October 1, 2026.

There are a few items to consider before making this donation:

  • Your donation only counts if the charity is on an approved list kept by your state, and your state must choose to take part in the program.
  • The charity can’t give scholarships to people connected to it, including its board members, officers, donors, and their family members. The new rules add brothers and sisters to that family list.
  • At least 90% of everything the charity takes in must go to scholarships. That leaves only 10% for credit card fees, bank charges, state fees, audits, and other costs. For that reason, organizations such as school district foundations, which do much more than award scholarships, usually can’t take part as currently structured. Many are setting up a separate charity just for this program.

Much Depends on Your State

The IRS will run the online system, but each state decides whether its residents can use the program and which charities qualify. Charities operating in more than one state must also keep separate funds for each state.

What This Means for You

If you’d like to use this tax break in 2027, keep an eye on whether your state joins the program. Before you donate, make sure the charity is on your state’s approved list.

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