Tax planning guide
2027 Federal Scholarship Tax Credit: Donor Limits and SGO Eligibility
Starting in 2027, qualifying cash donations to listed scholarship granting organizations can generate a federal tax credit of up to $1,700 per individual donor. Section 25F is not a credit for paying your child's tuition. State participation, organization listing, donation restrictions, state-credit reductions, and remaining income-tax liability determine the usable amount.
Confirm the organization before giving
A school, scholarship fund, or charity does not qualify automatically. Check the applicable IRS list for scholarship granting organizations in participating states. An advance state election is not by itself proof that a particular organization has been approved. The donor may live elsewhere, but the receiving organization must satisfy the program's requirements.
The credit begins with eligible cash contributions made during 2027. Stock, property, direct tuition payments, gifts made in 2026, and amounts earmarked for a specified student should not be entered as qualifying donations. If a payment contains both qualifying and nonqualifying components, obtain the breakdown before estimating a tax benefit. An acknowledgment should describe the payment rather than merely advertise a possible credit.
Calculate the donor cap in the correct order
Start with each donor's qualified cash contributions. Subtract state credits attributable to those qualified contributions under the applicable allocation rules. Then apply the $1,700 individual federal cap. Applying the cap first and subtracting a state credit afterward can understate the benefit when a larger qualifying gift remains after the offset.
For a joint return, record which spouse made each contribution and calculate the spouses separately. One person's large gift does not automatically use the other person's cap. A household can reach $3,400 only if both eligible donors have enough qualifying contributions after applicable state-credit reductions. Keep records that support the donor allocation rather than choosing an allocation solely to maximize the estimate.
| Input | Amount |
|---|---|
| Qualified cash gift | $2,500 |
| State credit attributable to qualifying gift | $500 |
| Net qualified amount | $2,000 |
| Available federal credit after donor cap | $1,700 |
| Remaining income-tax liability | $1,000 |
| Current-year credit / potential carryforward | $1,000 / $700 |
Nonrefundable does not mean unusable
The current-year credit cannot exceed the available federal income-tax liability after other applicable personal credits. That liability is not the amount withheld from pay and is not a projected balance due. A credit may increase the refund of payments already made without becoming a refundable credit in its own right.
Unused eligible credit may carry forward to the following five tax years. Track the contribution year, the amount used, the remaining balance, and its expiration. The site's first-year calculator reports an available carryforward but does not model later-year ordering among several donation years. A future return should apply the controlling carryforward and tax-liability instructions rather than adding every unused amount without regard to age.
Avoid double counting and retain evidence
Do not also claim a federal charitable deduction for the portion of a donation supporting this credit or its carryforward. A donation above the supported credit amount may have separate deduction treatment, subject to the ordinary charitable rules. State-credit allocation can be more complicated when a payment includes amounts that do not qualify federally; the state-credit field asks only for the attributable portion.
Keep the contribution receipt, donor identification, the SGO acknowledgment, the organization's program listing, state-credit records, and a worksheet showing each spouse's allocation. Before filing, verify the required federal form and any changes in final instructions. The October 2026 regulations are proposed, with stated reliance permitted for 2027; that distinction remains important when documenting the legal basis of an estimate.
Related calculators and guides
Frequently asked questions
Is the $1,700 limit per student?
No. It is per individual donor per year. Scholarship recipients and the donor's children do not determine that cap.
Can both spouses claim a credit?
A joint return can combine separate qualifying donor credits. Each spouse must have supported contributions; the household maximum is not automatic.
Does every participating state have eligible SGOs?
A state election and an organization's listing are separate requirements. Check both using current IRS program information.
Can I claim a 2026 donation?
No. The new federal program applies beginning in 2027. Filing a return in 2027 does not make an earlier payment qualify.
What happens if I owe little income tax?
The current-year credit is limited by remaining liability. Unused eligible amounts may carry to the next five years, subject to their rules and expiration.
Primary and methodology sources
- IRS: Federal Scholarship Tax Credit and participating states
- Treasury: proposed scholarship-credit regulations; reliance permitted for 2027
- 26 USC 25F: statutory credit and carryover rules
Educational planning information only. Official forms, instructions, assessors, and tax agencies control your filed return or tax bill.