Kentucky Law Opens Door to Federal Tax Credit for Scholarship Granting Groups

(KENTUCKY) — Kentucky made House Bill 1 law on March 17, 2026, opening the way for the state to join a federal tax credit scholarship program after lawmakers overrode Governor Andy Beshear’s veto and sent the measure to the Secretary of State as Acts Chapter 4.

The law elects Kentucky to participate in the federal qualified elementary and secondary education scholarship tax credit program, allowing donors to nonprofit scholarship granting organizations to claim a federal tax credit for contributions that support K-12 students.

Rep. Kim Moser, a Republican from Taylor Mill, sponsored Kentucky House Bill 1 (26RS), with multiple co-sponsors including T. Roberts and J. Bauman. The measure passed with support from nearly 80% of House and Senate members, including Democrats and Republicans.

Donors can receive a federal tax credit of up to $1,700 per year for contributions to approved scholarship granting organizations, known as SGOs. Those groups would provide needs-based scholarships for eligible families.

Scholarship funds can cover tuition, technology, tutoring or other educational needs at public or private schools, including Catholic schools. Donors also may request that their money go to specific schools.

Implementation begins in 2027. Before then, Kentucky officials must set up the state’s role in the program and approve the nonprofit groups that will receive donations and award scholarships.

The law gives the Secretary of State a central part in that process. The office must report Kentucky’s election to the U.S. Treasury, publish regulations and guidance online, promulgate administrative rules, and may collect fees or private contributions to cover costs.

House Bill 1 also sets conditions on who can participate. Scholarship granting organizations must verify household income under federal thresholds, and they can provide scholarships only to public or nonpublic schools that do not discriminate based on race, creed, color, ethnicity, nationality, disability, age, sexual orientation, or gender identity.

That nondiscrimination language came through House Floor Amendment 3 by T. Bojanowski. It became part of the bill that lawmakers ultimately enacted over the governor’s objections.

Beshear vetoed the measure because of prior constitutional concerns over state funds for private schools. Lawmakers then overrode that veto, and supporters argued the new approach avoids those issues because House Bill 1 ties Kentucky to a federal program rather than creating a state-funded one.

More than 25 states have already opted in, giving Kentucky supporters a ready comparison point as they argued the state should join rather than remain outside the program. Backers also said that without HB 1, Kentucky taxpayers could still donate to scholarship programs in other states while Kentucky students would not benefit.

That argument helped shape the debate around the bill’s practical effect. Supporters framed the law not as a state appropriation but as a way to channel private donations, backed by a federal tax credit, toward educational expenses for Kentucky families.

Jason Hall, executive director of the Catholic Conference of Kentucky, emphasized that scholarship granting organizations must use a needs-based approach. That point placed family income at the center of the program’s design rather than making scholarships broadly available without regard to need.

Ed Vandiver expressed optimism about bringing “millions of dollars into Kentucky to help kids.” His remark captured the financial hopes attached to the program as supporters pressed lawmakers to override the veto.

For families, the program’s structure matters as much as its politics. Scholarships may support tuition, but the law also allows money to pay for technology, tutoring and other educational needs, broadening the uses beyond a single school bill.

That means the scholarships could serve students in different settings. Eligible families could use the support at public or private schools, a feature that supporters said would widen educational options while keeping the assistance tied to household income limits and school participation rules.

For donors, the attraction lies in the federal tax credit. Under the law, a contribution to an approved scholarship granting organization can generate a federal tax credit of up to $1,700 per year, giving individuals a direct tax incentive to fund the program.

The role of scholarship granting organizations will be central once implementation starts in 2027. Those nonprofits will need state approval, will have to verify income eligibility, and will distribute scholarships under the program’s federal and state rules.

Kentucky’s administrative work now moves to the foreground. Regulations must be developed, guidance must be published online, and administrative rules must be promulgated before donations and scholarship awards can move through the new framework.

Awareness campaigns for families and educators are also expected as the state prepares for implementation. Those efforts will be needed because the law creates a new pathway for aid that depends on both donor participation and family awareness.

The measure’s legislative path was unusually broad for a school-choice debate in Kentucky. Nearly 80% support in both chambers, including votes from Democrats and Republicans, gave the bill a margin wide enough to survive the governor’s veto.

That level of support also helped distinguish House Bill 1 from earlier education funding fights in the state. Supporters pointed to the federal design of the program as a legal difference that they said put this measure on firmer footing than previous state-level initiatives Beshear had vetoed.

Still, the law does not bring the program to life overnight. Kentucky must notify the U.S. Treasury of its election to participate, then build the rules and approval process that will determine how scholarship granting organizations operate.

The statute gives the Secretary of State authority not only to make that report but also to publish regulations and guidance online. It also allows the office to collect fees or private contributions for costs tied to administration.

Another provision waives Eleventh Amendment immunity. That legal step sits alongside the administrative duties assigned under the bill as part of the state’s participation in the federal tax credit framework.

The program’s supporters have presented House Bill 1 as a way to keep Kentucky from missing out while other states move ahead. Because more than 25 states have opted in, they argued Kentucky risked leaving federal tax-supported donations on the table if it stayed out.

That concern fed into the closing argument for the bill. Without HB 1, Kentucky taxpayers could donate to scholarship programs elsewhere and receive the same federal tax credit, while students in Kentucky would see none of the scholarship money generated by those gifts.

By making the election on March 17, 2026, Kentucky placed itself in position to compete for those donations. The next test will be whether approved scholarship granting organizations can attract enough contributions to turn the federal tax credit into actual aid for students.

The broad menu of allowed uses could shape that effort. Tuition may draw the most attention, but the ability to pay for technology, tutoring and other educational needs gives scholarship organizations room to tailor assistance to different families and school settings.

The bill also leaves room for donor preference. Contributors may request allocation to specific schools, a feature likely to matter to school communities seeking to build support among alumni, parishioners or other backers.

At the same time, the law sets boundaries on which schools can participate. Scholarship granting organizations may fund only schools that meet the nondiscrimination requirements written into the measure, tying access to the scholarship stream to those conditions.

For Moser and other supporters, the law marks the start of a longer rollout rather than the end of a legislative fight. Kentucky has made its choice to join the federal program, but the state now must turn House Bill 1 into regulations, approved scholarship granting organizations and a working federal tax credit system before 2027 arrives.