The Treasury Department and the IRS issued proposed regulations October 1, 2026, for the Federal Scholarship Tax Credit, a new federal credit for contributions funding K-12 scholarships. The rules outline who may claim the credit, which organizations can receive donations and how states may participate.
The IRS published the proposal in the Federal Register on Friday, October 2, as 91 FR 62818 through 62868. The 51-page document is FR Doc. No. 2026-20277, RIN 1545-BR97, and regulation identifier REG-117199-25. It would add rules to 26 CFR Part 1.
The deadline for written or electronic comments is December 1, 2026. The agencies also scheduled a public hearing for December 15.
The credit, also called the Education Freedom Tax Credit, was created by section 70411 of Public Law 119-21, 139 Stat. 72, signed July 4, 2025. The law, commonly known as the One, Big, Beautiful Bill Act, added Internal Revenue Code section 25F. The proposal would apply to tax years ending on or after the date the regulations are finalized. Taxpayers, states and scholarship organizations may rely on the proposed rules earlier if they follow the provisions that apply to them consistently and in full.
Taxpayers can claim up to $1,700 for qualifying SGO contributions
An eligible taxpayer could claim an annual, nonrefundable credit of up to $1,700 for qualified cash contributions to a Scholarship Granting Organization, or SGO. Married couples filing jointly could claim up to $3,400 if each spouse makes a separate and distinct qualified contribution. The proposed regulations treat spouses who file jointly as separate taxpayers for the individual limit. Unused credit amounts could carry forward for up to five years.
The donation must go to an eligible SGO, not directly to a school or a student. Donors could not designate a contribution for a particular student. A taxpayer could support an eligible organization in a participating state even if the taxpayer lives elsewhere.
Students would need to qualify for enrollment in a public elementary or secondary school. Their household income could not exceed 300% of area median gross income in the calendar year before the scholarship application. A companion provision excludes scholarships from the gross income of the student and the student’s family.
Scholarships can cover school costs, but SGOs must control the payments
Scholarship funds could pay for private-school tuition, tutoring, special-needs services, books, supplies, computers and other equipment, as well as other qualifying costs tied to enrollment or attendance. The proposal requires SGOs to pay schools directly for tuition, fees, room and board, and certain other covered expenses.
Participating states would identify eligible SGOs. The proposed rules address verification for students in needs-based programs, foster children, and some students receiving tutoring or special-needs services in low-income areas. They also set eligibility requirements for organizations and participating states, which the rules call “covered States.”
The framework covers SGOs operating in more than one state, along with scholarship administration and recordkeeping. It would also require applicable state tax credits to be subtracted from qualifying contributions before applying the federal limit. Reporting, verification and audit provisions are intended to guard against duplicate payments, misuse of scholarship funds and fraud.
The temporary rules put state and SGO preparations on a separate clock
Treasury and the IRS issued companion temporary regulations, T.D. 10057, to establish procedures for states and organizations preparing for the planned January 1, 2027, launch. The temporary rules set recordkeeping and reporting requirements for SGOs certified by participating states, as well as requirements for state elections to join the program. The agencies said they incorporated feedback received after Notice 2025-70.
Those rules apply on or after September 1, 2026, and expire October 1, 2029. They were set to take effect 60 days after publication, scheduled for October 2, 2026.
The Government Accountability Office reviewed the temporary rule in an October 21, 2026, letter, decision B-338803, to congressional tax committee leaders. GAO said it received the rule October 2 and noted its Federal Register publication at 91 Fed. Reg. 62655. The temporary rule carries RIN 1545-BS17, distinct from the proposed regulations’ RIN.
GAO noted the Congressional Review Act’s 60-day delay for major rules, measured from publication or congressional receipt, whichever is later, unless an agency finds good cause. Its letter said the IRS both identified December 1, 2026, as the effective date and found good cause for making the temporary rule immediately effective without notice and comment under the Administrative Procedure Act.
“IRS found that failure to make the rule effective prior to notice and comment would be impracticable and contrary to the public interest” because the credit is intended to cover contributions in taxable year 2027, GAO wrote.
The IRS said prompt implementation would give organizations time to submit documentation to states and allow states to determine eligibility.
Commenters have until December 1 to request a place at the hearing
The IRS asks commenters to use the Federal eRulemaking Portal and identify the submission with IRS and REG-117199-25. Comments posted there cannot be edited or withdrawn, and Treasury and the IRS will make them publicly available. Paper submissions may be sent to CC:PA:01:PR (REG-117199-25), Room 5503, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.
- Written comments and requests to speak, with an outline of topics, are due December 1, 2026. The hearing will be cancelled if no outlines arrive by then.
- Requests to attend must reach the IRS by 5 p.m. ET on Thursday, December 10, 2026.
- The public hearing is scheduled for Tuesday, December 15, 2026, at 10 a.m. Eastern Time.
For questions about the proposed regulations, the IRS lists Constance Chien at (202) 317-7002 and Andrew Fahmy at (202) 317-3840. The Publications and Regulations Section handles comments, hearing questions and building access list requests at (202) 317-6901, or publichearings@irs.gov, which the IRS identifies as preferred. The numbers are not toll-free.
Treasury estimates the program could reach 2.2 million scholarships annually
The IRS announced the proposed regulations in release IR-2026-117 on October 1. Treasury Secretary Scott Bessent said 30 states had opted in and encouraged all 50 states to participate. He called the credit a new chapter in educational freedom and opportunity.
Education Secretary Linda McMahon described it as “the largest expansion of school choice in history.” IRS Chief Executive Officer Frank J. Bisignano said the rules provide states, scholarship organizations and taxpayers clarity as they prepare for the new credit.
Treasury and the IRS estimate that by 2030 the program could support 600 to 700 SGOs. Their projection also anticipates more than 11 million taxpayers making nearly $26 billion in qualified contributions annually, funding as many as 2.2 million scholarships each year.
