The Internal Revenue Service issued temporary regulations establishing a nonrefundable federal tax credit for qualified contributions to scholarship granting organizations. The agency released the rules under Treasury Decision 10057 and a Notice of Proposed Rulemaking under REG-117199-25 on October 1, 2026.

The tax credit applies to qualified contributions made in taxable years ending after December 31, 2026. A qualified contribution is defined as a charitable cash contribution designated by the donor at the time of contribution. Qualified contributions exclude digital assets.

Scholarship Granting Organizations must maintain a segregated account exclusively for qualified contributions. The IRS required all such organizations to register via the IRS SGO Portal before soliciting gifts or appearing on state lists. To protect donor privacy, the IRS introduced a unique donor number system, eliminating the need for organizations to collect Social Security Numbers or Taxpayer Identification Numbers.

Reporting obligations require Scholarship Granting Organizations to provide written acknowledgement to donors no later than January 31 of the following calendar year. These organizations must also report qualified contribution information to the IRS no later than February 28 of the following year. The temporary regulations implement requirements for the One, Big, Beautiful Bill Act, specifically section 70411 of Public Law 119-21.

Timeline

The One Big Beautiful Bill Act was signed into law on July 4, 2025, as part of the FY2025 reconciliation act, establishing the federal tax credit scholarship program effective January 1, 2027. The IRS provided Form 15714 for states to make an Advance Election to participate in the Federal Scholarship Tax Credit program, which became available on January 1, 2026, allowing states to prepare for the 2027 tax year. As of the announcement on September 20, 2026, 27 U.S. states had elected to participate in the Federal Scholarship Tax Credit program, including the District of Columbia. Primary source: home.treasury.gov

The Internal Revenue Service issued temporary regulations establishing a nonrefundable Federal tax credit for qualified contributions to scholarship granting organizations on October 1, 2026. On that same date, the IRS issued temporary regulations under Treasury Decision 10057 and a Notice of Proposed Rulemaking under REG-117199-25 to implement the Federal Scholarship Tax Credit under Section 25F of the Internal Revenue Code. The IRS also required all scholarship granting organizations to register via the IRS SGO Portal before soliciting gifts or appearing on state lists, as outlined in the temporary regulations published on October 1, 2026. Section 139K of the One Big Beautiful Bill Act, enacted in 2025, excludes from gross income any scholarship amounts received by eligible students or their dependents from qualified SGOs, effective after December 31, 2026. Primary source: home.treasury.gov

What's New

The IRS requires Scholarship Granting Organizations to maintain a segregated account exclusively for qualified contributions, as outlined in Temporary Regulations under Treasury Decision 10057. Primary source: home.treasury.gov

Further documentation shows the One Big Beautiful Bill Act, which includes Section 70411 establishing the Federal Scholarship Tax Credit, was signed into law on July 4, 2025, as part of the FY2025 reconciliation act. The official record states that the nonrefundable federal tax credit for qualified contributions to scholarship granting organizations is limited to $1,700 for any taxpayer. The IRS issued temporary regulations under Treasury Decision 10057 and a Notice of Proposed Rulemaking under REG-117199-25 on October 1, 2026, to implement the Federal Scholarship Tax Credit under Section 25F of the Internal Revenue Code. The IRS required all scholarship granting organizations to register via the IRS SGO Portal before soliciting gifts or appearing on state lists, as outlined in the temporary regulations published on October 1, 2026. The IRS issued Notice 2025-70 in August 2025 requesting public comments on the implementation of the Federal Scholarship Tax Credit, signaling early engagement with stakeholders prior to finalizing the regulations. Primary sources: home.treasury.gov, irs.gov

Why It Matters

The establishment of the Federal Scholarship Tax Credit creates a new mechanism for funding private education through tax incentives, with participation already secured by 27 U.S. states and the District of Columbia as of September 2026. The program relies on a structured regulatory framework that mandates specific financial handling by Scholarship Granting Organizations, including segregated accounts and strict reporting deadlines to ensure compliance and transparency.

The regulations address privacy concerns by introducing a unique donor number system, removing the requirement for organizations to handle sensitive personal identifiers like Social Security Numbers. By excluding digital assets from qualified contributions and capping the credit at $1,700, the IRS has defined clear boundaries for the program's scope, while the exclusion of scholarship amounts from gross income provides direct financial relief to eligible students and their dependents starting in 2027.