The $1,700 school tax credit pays the donor and hands you six maybes

The $1,700 credit goes to whoever donates, so the money can reach your family only as a scholarship from a charity, and only after six separate yeses. That scholarship takes a state that joined, a listed charity that serves your child, a household under the income line, and money left when your application comes up. No federal form gets your child a scholarship.

The donor has the easy job. A gift of $1,700 to a qualifying charity takes $1,700 off the donor’s federal income tax, which makes it free for anyone who owes that much, apart from the wait until tax season. The charity, called a scholarship granting organization or SGO, pools the gifts, and families apply to it. The credit itself, which the 2025 budget law created, signs in under three names, Section 25F of the tax code, the Federal Scholarship Tax Credit and the Education Freedom Tax Credit.

1. December 1, 2026Public comments close on the proposed rules.
2. January 1, 2027Gifts can start to qualify, though Iowa says its first eligible gifts come after it files its list in early 2027. States have until 11:59 p.m. to file to join for 2027.
3. February 15, 2027Last day for a state that joined to send the IRS its list of organizations.

No federal document we read sets a date for first awards. The closest thing is a Treasury example of a scholarship arriving the summer before a school year.

A scholarship takes six yeses, and the income test is the easy one

The first yes can still change. The IRS list dated October 22, 2026 has 30 states. Missing that day were Arizona, California, Connecticut, Delaware, Hawaii, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, New Mexico, New York, Oregon, Pennsylvania, Rhode Island, Vermont, Washington, Wisconsin and the District of Columbia. Any of them can still file Form 15714 by the end of January 1, 2027.

New York shows why the list is the thing to check. Its governor had promised to join “if, and only if, all schools and students” could benefit, then said on October 9, 2026 that the state would not “leave money on the table.” That statement mentions no filing, and New York was not on the list 13 days later.

The second yes is paperwork, and it can sink a whole state. The IRS list shows who has filed the first form, and a listed state can still fall off. A state that sends no list of organizations by February 15, 2027 leaves no organization qualifying for the year, which Treasury’s temporary rules call a way to “in effect, opt out.” Once its list is in, a state cannot back out for that year. Joining lasts one calendar year, so 2028 is a new decision.

Iowa is taking applications from organizations until December 11, 2026, and Nebraska had posted no forms when we checked on November 1, 2026. The IRS had posted no list of organizations that day. A charity already running a state tax-credit scholarship still has to get on the new list.

Treasury expects 600 to 700 organizations across the 30 states by 2030, roughly 20 to 23 per state. By law each must spend at least 90 percent of its income on scholarships and serve at least 10 students, not all at one school. Each may also narrow its own rules. Treasury’s examples include funding only science or foreign-language costs and taking only households under 80 percent of the local median income.

In San Jose, a family of four can earn $616,500 and pass the income test

The law sets the line at 300 percent of area median income, the midpoint income for your local area, which the Department of Housing and Urban Development (HUD) estimates each year. Three times the middle leaves a lot of room.

HUD’s national median for fiscal 2026 is $107,900, which puts the national line at $323,700. Treasury estimates that about 95 percent of American children live in households under the line. A family of four earning $490,000 in Arlington, Virginia, is under it. So is a family of four earning $190,000 in McAllen, nearly three times the local median. The lowest four-person line in the 50 states belongs to Oglala Lakota County, South Dakota, at $107,100.

Treasury’s proposed multipliers for household size are 0.70 for one person, 0.80 for two, 0.90 for three, 1.08 for five, 1.16 for six, 1.24 for seven and 1.32 for eight. A single parent with one child in Atlanta has a line of $282,720, and a family of six in Jackson has $318,072.

HUD’s map has opinions of its own. Dallas County sits at $363,300 and next-door Tarrant County, home to Fort Worth, at $330,900. The number that counts is your county’s in HUD’s lookup, whatever our metro label says.

Arlington, Montgomery County and DC share a $498,300 line, and only Virginia made the list

All three sit in HUD’s Washington area at $498,300, and only Virginia is on the IRS list. A previous governor filed that election in January 2026, and the current governor had not committed to sending the list of organizations as of October 2026. If that list misses February 15, 2027, Arlington’s answer turns to no as well. Greater St. Louis has one line, $340,500, with Missouri listed and Illinois not.

What decides it is where your child lives. Under the proposed rules, attending school or buying goods or services in a state “is not sufficient” to place a child there. A child who lives in Maryland and goes to school in Virginia cannot draw on a Virginia organization. Military families and families on Indian Lands get separate rules.

Donors have no such limit. A grandparent in Maryland can give to a Virginia organization and claim the credit, while a child in Maryland cannot receive a scholarship from it.

Even in 2030, Treasury’s own forecast funds about 1 eligible student in 14, or 1 in 6

Clearing the line only gets your child into a very large pool. Treasury’s numbers imply about 28 million eligible students in the states that have joined. It forecasts that by 2030 donors could fund 2 million full-time scholarships of $12,000 a year, or 5 million part-time ones of $4,500. That works out to about 1 eligible student in 14 on full-time awards, or 1 in 6 on part-time ones, and those are 2030 numbers. Treasury gives none for 2027.

The law gives priority to “students awarded a scholarship the previous school year,” then to students whose sibling won a scholarship “from such organization.” On awards “for tuition, fees, and room and board,” the proposed rules keep that order so a child can stay at the same school, which makes the first round of awards the one to catch. An award based on need for individual tutoring or special-needs services can run differently, since a prior award “may not be relevant and priority instead can be based on need for the services.” Only the sibling clause names the organization, and neither the law nor the proposed rules say whether a scholarship from an existing state program counts as a prior award.

That priority order says nothing about income. In Dallas, two families of four earning $60,000 and $360,000 stand level unless the organization chooses otherwise.

Grandma’s $1,700 goes into the pool, and it can’t be aimed at your kid

The law bars an organization from earmarking or setting aside gifts for any particular student. A grandparent’s $1,700 goes into the pool, and your child’s application stands on its own.

Giving does not disqualify your family. Treasury weighed and declined a ban on scholarships for donors’ relatives. Anyone who gives an organization more than $5,000 in a year, if that is also more than 2 percent of what it took in, becomes a “substantial contributor” for that year and the next. That person’s close family, including children, grandchildren, siblings, nieces and nephews, then cannot receive a scholarship from that organization. A couple’s gifts count together, and the $3,400 a couple can claim stays under the limit. The same bar covers board members and anyone who helps choose recipients, so joining the selection committee can cost your own child a scholarship there.

The money skips your bank account unless you hold receipts

Under the proposed rules, no money goes to a family except reimbursements backed by receipts the organization has verified. Tuition, fees, and room and board charged by a school are paid directly to the school, which must return any excess. Other sellers can be paid directly or through a “qualified digital wallet,” a payment platform run by a third party.

The $1,700 limit belongs to the donor. The Education Department says it “does not limit the size of a student’s scholarship.” Organizations set the amounts, and awards may not exceed the expenses they cover. A family does not need to owe federal income tax to benefit.

Section 530 of the tax code sets the outer limit on expenses at a public, private or religious school. It lists tuition, fees, tutoring, special-needs services, books, supplies, equipment, computers and internet access, plus room and board, uniforms, transportation and extended-day programs that a school requires or provides. An organization may pay only for what is reasonably necessary to its charitable purpose. That list is a ceiling.

The law promises no scholarship

"Eligibility does not guarantee a scholarship," in the Education Department’s words. Joining is voluntary for states, and a state that joins cannot limit the type of school or expense organizations fund, under the proposed rules. An organization may specialize in tutoring public school students or in private school tuition, and nothing requires it to serve either group. The Education Department says the credit does not divert state or local school money or draw on existing federal programs. Each dollar of credit is also a dollar less in federal income tax collected, and Treasury forecasts $26 billion a year in gifts by 2030.

The unpublished IRS table could move New York’s line by $195,900

New York’s four-person line is $312,900 by the plain multiplication in our table and in Treasury’s example, and $508,800 by another reading of the proposed text. Miami’s is $269,400 or $408,600. That text speaks of “the income limit determined based on area median gross income and family size in accordance with section 8,” and HUD’s published low-income limits are not always half the median, because HUD adjusts them for housing costs and caps yearly changes. The higher figures are six times HUD’s published 50 percent limit for four people. Across HUD’s 664 metro areas in the 50 states and the District, the two methods differ by at least $1,000 in 281. If your income falls in such a gap, wait for the IRS table before ruling yourself in or out.

Everything else above about income, households and schools also comes from proposed rules. The temporary rules issued alongside them mark those definitions “[Reserved].” A hearing is set for December 15, 2026. Until final rules arrive, donors, organizations and states may rely on the proposed version for gifts from January 1, 2027, if they follow it whole.

Treasury proposes counting cash income, including child support and alimony, and ignoring paper gains on a home or stock. Under HUD’s strict definition, which can count an assumed return on assets above $50,000, an amount HUD adjusts each year, Treasury estimates 64 percent of school-age children would qualify instead of 95 percent. Many children in owner-occupied homes would lose out.

Guidance on what counts as a school and an expense is still missing. Treasury calls it “a high priority” and promises it “as soon as possible,” and we found none as of November 1, 2026. The word homeschool appears in the proposed rules only inside a survey citation, so those families have no federal answer yet.

Your homework before January 1, 2027 has seven items, and none of them is applying

1. Check your state on the IRS list, then check again after January 1, 2027 and after February 15, 2027. If it is missing, the decision belongs to your governor or a designee.
2. Find your line. Look up your county in HUD’s fiscal 2026 system, take the median family income, multiply by 3, then multiply by your household’s size factor.
3. Count your household the proposed way. That means your child plus each person living with your child. With shared custody, use the home where your child lives longest, or, if time is equal, the household with the higher income.
4. Start a 2026 income folder. The test looks at the calendar year before the application, so a 2027 application looks at 2026. Keep pay stubs, W-2s, and your tax return or IRS transcript, plus records of any child support or alimony.
5. Keep any benefit letter. Under the proposed rules, an award letter dated within the last 12 months showing someone at home is approved for food aid (SNAP), cash aid (TANF), WIC for mothers and babies, Section 8 housing or Supplemental Security Income can replace income paperwork. School-wide free lunch does not count. Foster children are treated as meeting the income test.
6. Ask your child’s school whether it will accept tuition paid directly by a scholarship organization and return any excess, as the proposed rules would require.
7. Ask generous relatives to wait. The IRS says no one can claim the credit for gifts in a state until it has joined and submitted its organizations, and Form 8525, the donor’s form, was not posted as of November 1, 2026. When giving, they should check the organization against the IRS list, say the payment is a Section 25F contribution, and keep the acknowledgement with its donor number, due by January 31, 2028 for 2027 gifts. Spouses each give their own $1,700. A gift before January 1, 2027 cannot qualify, so a check mailed in December 2026 earns a thank-you note and no credit.

Is a scholarship from this program taxable?

Scholarship amounts for qualified expenses are excluded from federal gross income under Section 139K, which the same 2025 law added to the tax code. State income tax treatment is a question for your state’s revenue department.

How do the residence rules work for military families?

Military dependents may count as residents of both their state of domicile and the place where the service member lives, under the proposed rules. Treasury estimates that exception could help as many as 33,600 students a year.

Does my child have to be enrolled in a school to apply?

Enrollment at application time is not required under the proposed rules. A student who is eligible to enroll in a public school can receive a scholarship the summer before the school year, as long as the expense connects to enrollment at a school later that year.

The tables we built and the calculations we ran on this page are free to reuse under Creative Commons Attribution 4.0: credit Kidsomnia and link here. Government figures inside them stay under the agency’s own terms.