On October 2, 2026, the Department of the Treasury and the IRS published proposed regulations (91 FR 62818) and temporary regulations in the Federal Register for a new federal tax credit: the Federal Scholarship Tax Credit, also known as the Education Freedom Tax Credit. Established by the 2025 legislation (Section 25F of the Internal Revenue Code), the IRS describes it as the first federal tax credit supporting private donations for K-12 student scholarships. On October 22, the IRS updated the list of states participating in the program for 2027.
How much is the credit and how it works
The credit applies to cash donations made to a certified Scholarship Granting Organization (SGO). Key rules according to the proposed regulations include:
- the limit is $1,700 per year per taxpayer; for joint returns, each spouse is counted separately, so a couple can receive up to $3,400 if each makes a donation;
- the credit is nonrefundable—it reduces tax liability but does not provide a refund beyond the tax owed; any unused amount can be carried forward for up to five years;
- only “cash” counts: check, wire transfer, card, or after-tax payroll deduction in US dollars; digital assets do not qualify;
- the donor must designate the donation as qualified at the time it is made—this decision cannot be reversed;
- if a state tax credit applies to the same donation, the federal credit is reduced by that amount;
- the portion of the donation covered by the credit cannot be additionally deducted as a charitable contribution; any excess above the limit may potentially be deducted under standard rules.
By January 31 of the following year, the organization will issue a written acknowledgment to the donor containing a unique donor number. This number must be entered on Form 8525 attached to the tax return.
Which states are in the program
State participation is voluntary. According to the IRS list updated on October 22, 2026, for 2027, 30 states have joined: Alabama, Alaska, Arkansas, Colorado, Florida, Georgia, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, North Carolina, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, West Virginia, and Wyoming.
Notably absent from the list for now are states with the largest Polish-American populations outside of Florida: New York, New Jersey, Illinois, Pennsylvania, Connecticut, Michigan, Wisconsin, and Massachusetts. The IRS announced that it will update the list as additional states complete the formal requirements.
What this means for the Polish-American community
The donor’s place of residence does not matter. The proposed regulations explicitly allow a resident of a non-participating state to make a donation to an organization on the list of a participating state and claim the tax credit. Therefore, a family from Chicago or New York can support a scholarship organization in Florida, for example. The requirement is that the organization must be on the list provided to the IRS by a participating state.
Scholarships may be awarded to students eligible to attend public elementary or secondary schools from households with an income not exceeding 300 percent of the area median gross income in the year prior to the application. Funds cover expenses related to education and school attendance; the IRS will specify a detailed catalog of expenses in separate guidelines. School-charged fees are paid directly to the school by the organization.
Comments on the proposed regulations can be submitted until December 1, 2026; a public hearing is scheduled for December 15, 2026. Sources: proposed regulations in the Federal Register, IRS news release IR-2026-117, and the current list of participating states (IRS).
This article is for informational purposes only and does not constitute tax advice. The regulations are currently in the proposal stage and are subject to change.
To find out whether a scholarship donation will benefit your 2027 tax return, it is best to consult with a Polish accountant or tax advisor from the Polish Pages directory.
