Tax Planning
Smart Tax Planning with the One, Big, Beautiful Bill: Federal Scholarship Tax Credit Explained
How 27 states jumped on board the new Federal Scholarship Tax Credit—and how you can use it to support education and save on taxes starting in 2027.
By NomadicTax Research Team • 5-8 min read • June 26, 2026
## What is the Federal Scholarship Tax Credit (FSTC)?
Enacted under the *One, Big, Beautiful Bill* (Public Law 119-21), the **Federal Scholarship Tax Credit** allows eligible individual taxpayers to claim a nonrefundable credit for donations (up to **$1,700**) they make to **Scholarship Granting Organizations (SGOs)** in participating states. ([irs.gov](https://www.irs.gov/newsroom/more-than-half-the-us-states-signed-up-to-participate-in-the-federal-scholarship-tax-credit-program-enacted-under-the-one-big-beautiful-bill?utm_source=openai))
### Key features:
- Credit reduces your *federal tax liability* but won’t generate a refund if your credit exceeds taxes owed. Excess credit can typically be **carried forward for up to 5 years**. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-provisions?utm_source=openai))
- SGOs must be **qualified**: meet state and IRS requirements, listed in participating states. ([irs.gov](https://www.irs.gov/newsroom/more-than-half-the-us-states-signed-up-to-participate-in-the-federal-scholarship-tax-credit-program-enacted-under-the-one-big-beautiful-bill?utm_source=openai))
- State participation is **voluntary**, and many have already **opted in**. As of June 2026, **27 states** have elected to participate. ([irs.gov](https://www.irs.gov/newsroom/more-than-half-the-us-states-signed-up-to-participate-in-the-federal-scholarship-tax-credit-program-enacted-under-the-one-big-beautiful-bill?utm_source=openai))
## Who this helps & why it matters
- Families seeking **elementary or secondary education** assistance in more affordable ways.
- Donors who want to support education causes while gaining federal tax benefits.
- State education philanthropy efforts, as SGOs become recipients of qualified contributions.
## Implementation timeline
- Although the law was passed in **2025**, FSTC starts **for contributions made in 2027**. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-provisions?utm_source=openai))
- States must provide a list of qualified SGOs to the IRS **by January 1, 2027**, or as soon as practicable. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-provisions?utm_source=openai))
## Examples
- **Jane**, living in Texas (a participating state), contributes **$1,500** to a listed SGO. She claims a **$1,500 nonrefundable credit** on her 2027 federal tax return. If her tax bill is $1,200, she uses $1,200 of the credit, and **carries forward $300** to 2028.
- **Tom** in a non-participating state—unless his state elects in, he cannot claim the federal credit even if he could donate to an SGO.
## Action steps—you can take now
1. Check if **your state** has made the election—visit IRS.gov and search for the “Federal Scholarship Tax Credit electing states” list. ([irs.gov](https://www.irs.gov/newsroom/more-than-half-the-us-states-signed-up-to-participate-in-the-federal-scholarship-tax-credit-program-enacted-under-the-one-big-beautiful-bill?utm_source=openai))
2. If your state participates, find out which **SGOs are qualified** in your state. Only donations to those will qualify.
3. Choose your donation carefully—be sure it meets state/IRS guidelines (cash donations only, timing, etc.).
4. Record and keep **receipts and SGO documentation**—you’ll need this to claim the credit.
5. Plan for carryforward if your donation exceeds your tax liability in a given year.
This new credit under the One, Big, Beautiful Bill offers meaningful planning opportunities for taxpayers who support educational causes. By aligning timing, choosing your state wisely, and keeping good records, you can maximize your benefit.