Key Takeaways
- The new Federal Scholarship Tax Credit starts January 1, 2027: $1,700 per person, $3,400 per couple.
- Donors in any state can give to an SGO on a participating state's list.
- Unused scholarship credit carries forward five years; claim it on Form 8525 with your 2027 return.
- The 2026 Child Tax Credit is $2,200 per child; the AOTC is worth up to $2,500 per college student.
The biggest news for parents this fall: the IRS released the rules for the new Federal Scholarship Tax Credit on October 1, 2026. Starting January 1, 2027, you can give up to $1,700 to an approved scholarship group and get every dollar back as a tax credit. Married couples filing jointly can claim up to $3,400.
That credit sits on top of the breaks parents already get: the Child Tax Credit for younger kids, and the American Opportunity and Lifetime Learning credits once they’re in college. Below I cover all of them, starting with what the new regulations actually say.
Federal Scholarship Tax Credit: What the October 2026 Rules Say
The Federal Scholarship Tax Credit (FSTC) was created by the One Big Beautiful Bill (OBBBA). It’s a dollar-for-dollar credit for cash you donate to a Scholarship Granting Organization (SGO) that funds K-12 scholarships.
The Treasury and IRS issued proposed regulations (REG-117199-25) and companion temporary regulations on October 1 (announcement IR-2026-117), published in the Federal Register on October 2. Taxpayers can rely on the proposed rules for donations made starting January 1, 2027. Here’s what they settled:
- $1,700 per person, $3,400 per couple. Each spouse on a joint return counts as a separate taxpayer, so a couple can claim $3,400 if each spouse gives $1,700.
- Where you live doesn’t matter. You can give to any SGO on any participating state’s list, even if your own state didn’t opt in.
- Cash only. Check, card, electronic transfer or after-tax payroll deduction counts. Stock and crypto don’t.
- No double dip. You can’t also deduct the same gift as a charitable donation.
- State credits come off first. If your state gives its own credit for the same donation, your federal credit is reduced by that amount.
How you’ll claim it
You’ll claim the credit on your 2027 return, filed in 2028, using a new Form 8525, Federal Scholarship Tax Credit. The SGO has to send you a written acknowledgement with a unique donor number by January 31 of the following year.
Keep that letter. If the donor number is missing from your Form 8525, the IRS will presume the donation didn’t qualify unless you can prove otherwise.
It’s nonrefundable, but unused credit carries forward
The credit can only reduce tax you owe. It won’t create a refund on its own. If your tax bill is too small to use all of it, the unused part carries forward for up to five years.
That’s a change from how this page described it before. Over-giving is still capped, though. Donate $2,500 and only $1,700 of it ever counts toward the credit.
Which states are in
Treasury Secretary Scott Bessent said on October 1 that 30 states have opted in. The IRS’s last published list, from June, named 27. States must file an advance election (Form 15714) by January 1, 2027 and submit their approved SGO list by February 15, 2027.
Since residence doesn’t matter for donors, the state list matters more for families looking for scholarships. Those scholarships go to students in households earning up to 300% of area median income, and the money received is excluded from the family’s income under the new Section 139K. Treasury estimates about 96% of children in participating states would be eligible.
Two examples
Dana and Luis, married filing jointly, each give $1,700 to a listed SGO in February 2027. They owe $6,000 in federal tax for 2027. They claim a $3,400 credit on Form 8525 and their tax drops to $2,600.
Priya is single and gives $1,700 in 2027, but after her other credits she only owes $900 in tax that year. She uses $900 of the credit in 2027 and carries the remaining $800 forward to 2028.
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Child Tax Credit and Additional Child Tax Credit
The Child Tax Credit (CTC) is worth $2,200 per qualifying child under 17 for 2026. Up to $1,700 per child is refundable through the Additional Child Tax Credit (ACTC) if your tax bill is already at zero.
Under the OBBBA, the taxpayer (or at least one spouse on a joint return) now needs a valid Social Security Number to claim it. I cover the phase-outs and ACTC math on my dedicated Child Tax Credit page.
Example: A married couple with two kids under 17 and $95,000 of income would generally claim the full $4,400. A single parent with one child, $28,000 of earnings and little tax owed would lean on the ACTC instead, up to $1,700 as a refund (15% of earnings above $2,500).
If you claim the ACTC or EITC, expect the PATH Act hold on early refunds. I explain the timing in my post on Code 846 and the PATH Act refund hold.
Once a child turns 17, the CTC ends. You may still get the $500 Other Dependents Credit if they’re still your dependent, which is when the college credits below take over.
American Opportunity Tax Credit (AOTC)
The AOTC is worth up to $2,500 per eligible student: 100% of the first $2,000 of qualified expenses plus 25% of the next $2,000. It’s permanent law, so there’s no expiration date to watch.
Income limits for 2026 (these aren’t indexed for inflation):
- Full credit: MAGI up to $80,000 single / $160,000 joint
- Partial credit: $80,000-$90,000 single / $160,000-$180,000 joint
- No credit: above $90,000 single / $180,000 joint
It only covers the first four years of college, and the student must be at least half-time in a degree or credential program.
Example: A parent whose freshman pays $4,000 in tuition and required fees can claim the full $2,500 if income is under the limit. A couple at $170,000 MAGI lands mid-phase-out and gets roughly half.
If you’re saving ahead, my 529 plan rules for 2026 post covers how 529 withdrawals and the AOTC interact. You can’t use the same dollars for both.
Lifetime Learning Credit (LLC)
The Lifetime Learning Credit is worth up to $2,000 per return, not per student. It’s 20% of up to $10,000 of tuition and required fees, and it’s permanent too.
It’s more flexible than the AOTC. It covers any year of college, grad school and job-skills courses, with no degree requirement. Its income limits now match the AOTC’s, phasing out between $80,000 and $90,000 single and $160,000 and $180,000 joint.
Example: A parent taking a $1,500 professional certificate course gets a $300 credit, not $1,500. A family with two kids both in their first four years of college will usually do better claiming the AOTC for each student.
Earned Income Tax Credit (EITC)
The EITC boosts the wages of lower-income workers, and it’s much larger for families with kids. See my current EITC tables and income limits by filing status.
A single parent with two kids earning $32,000 would likely qualify for a sizable EITC on top of the CTC/ACTC, often several thousand dollars combined. Couples without kids can qualify for a smaller EITC too.
For newborns, the OBBBA also created Trump Accounts with a $1,000 federal seed deposit. It isn’t a tax credit, but I cover how it works in my Trump Accounts guide.
Kids’ Tax Credits at a Glance
| Credit | Max amount | Refundable? | Starts |
|---|---|---|---|
| Child Tax Credit | $2,200/child | Up to $1,700 (ACTC) | Now |
| AOTC | $2,500/student | Up to $1,000 | Now |
| Lifetime Learning | $2,000/return | No | Now |
| Scholarship credit | $1,700/person ($3,400 joint) | No (5-yr carryforward) | Jan 1, 2027 |
| Credit | Full credit up to | Phased out at |
|---|---|---|
| Child Tax Credit | $200K single / $400K joint | Reduced $50 per $1K over |
| AOTC and LLC | $80K single / $160K joint | $90K / $180K |
| Scholarship credit | No income limit | No income limit |
Scholarship Credit Mistakes I Expect to See
I get a lot of questions about this credit, and a few misunderstandings keep coming up. Here are the ones I’d watch:
- Giving in 2026. Donations before January 1, 2027 don’t count. A gift this December is just a regular charitable donation.
- Assuming your state has to opt in. For donors, it doesn’t. The SGO has to be on some participating state’s list, and the IRS will publish the combined list.
- Trying to fund your own child. SGOs can’t earmark donations for a particular student, so this isn’t a way to pay your own kid’s tuition.
- Losing the acknowledgement letter. No donor number on Form 8525 means the IRS presumes no credit.
- Forgetting the state credit offset. If your state also gives a credit for the gift, the federal credit shrinks by that amount.
For the bigger picture on what you’ll owe, my 2026 federal tax brackets post has the current rates and 2027 projections. Since the scholarship credit is nonrefundable, your tax bill sets how much you can use.
What to Watch Before the First 2027 Donations
The calendar between now and early 2027 is busy, and I’ll update this page as each step lands:
- December 1, 2026: public comments on the proposed regulations are due (60 days after publication).
- December 15, 2026: IRS public hearing on the rules (it’s cancelled if nobody asks to speak).
- January 1, 2027: credit starts; deadline for states to file their advance election.
- February 15, 2027: deadline for states to submit their 2027 SGO lists.
- Late 2026: the IRS’s 2027 inflation adjustments, which should set the 2027 CTC amount.
The $1,700 cap is written into the law, so I don’t expect it to change for 2027. The open questions are the final state count, how quickly SGOs get listed and whether the final rules keep the $3,400 joint reading.
For the other credits, I’m watching whether the refundable ACTC finally ticks up from $1,700. Some projections suggest $1,800 for 2027, but the IRS hasn’t announced it yet. The AOTC and LLC income limits aren’t indexed, so I expect them to stay put.
This page is for general information and should not be construed as official IRS information or tax advice for your situation. The full rules are in the IRS announcement on the scholarship tax credit.
