The IRS-approved credit allows taxpayers to redirect up to $1,700 of federal tax payments to private scholarships, but 23 states have not adopted it.
A new federal tax credit permits taxpayers to redirect up to $1,700 of their federal tax liability to private scholarship funds, effectively reducing their tax bill dollar-for-dollar. The credit, introduced under the One Big Beautiful Bill Act, applies starting in the 2027 tax year but requires state participation to be accessible to residents.
Twenty-seven states, primarily Republican-led, have opted into the Federal Scholarship Tax Credit (FSTC), while 23 states, mostly Democratic-led, have not. The IRS has expressed hope that additional states will join, as participation determines the credit’s availability and value to taxpayers.
The credit functions as a direct offset rather than a deduction, making it more valuable for eligible filers. However, it does not represent additional income but rather a redirection of existing tax obligations to approved scholarship-granting organizations.