US Taxpayers Could Get Up to $3,400 in Tax Credits in 2027—but There's a Catch

US taxpayers could claim up to $3,400 in federal tax credits in 2027, but married couples must meet a key requirement to receive the full amount. Under the new Education Freedom Tax Credit, eligible individuals may claim a non-refundable federal tax credit of up to $1,700 for qualifying cash donations to eligible scholarship-granting organisations. Married couples filing jointly could claim up to $3,400, provided each spouse makes sufficient qualifying contributions.

The programme is scheduled to begin on 1 January 2027, following proposed regulations issued by the US Department of the Treasury and the Internal Revenue Service (IRS) on 1 October 2026. It aims to encourage private donations that fund scholarships for eligible elementary and secondary school students. The credit is not an automatic government payment to families. Taxpayers must make qualifying contributions to eligible organisations and meet the programme's requirements.

Who Qualifies for the New Tax Credit?

The Education Freedom Tax Credit supports donations to scholarship-granting organisations (SGOs), which use qualifying contributions to fund scholarships for eligible students. Under the proposed regulations, an SGO generally must qualify as a public charity under Section 501(c)(3) of the Internal Revenue Code, maintain separate accounts for qualifying contributions, meet operational requirements, and appear on an eligible state's list submitted to the IRS.

State participation is voluntary. Taxpayers cannot assume that every scholarship organisation qualifies simply because it operates in a participating state. Donors may contribute to eligible organisations outside their state of residence, provided the organisation meets the federal requirements. Before donating, taxpayers should consult the IRS's official guidance on the Federal Scholarship Tax Credit and check the organisation's eligibility.

Why Married Couples Must Contribute Separately

The $3,400 maximum comes with an important condition for married couples filing jointly. Although spouses submit one joint tax return, the proposed regulations apply the individual $1,700 credit limit separately to each spouse's qualifying contributions. To claim the full combined credit, each spouse must satisfy the applicable contribution requirements.

For example, if one spouse makes a qualifying $1,700 donation and the other contributes nothing, the couple generally cannot claim the full $3,400. The credit would be limited to the amount supported by qualifying contributions, subject to the programme's rules. Couples should therefore check how much each spouse contributes before assuming they can claim the maximum benefit.

What Can the Scholarships Cover?

The programme supports scholarships for kindergarten through 12th grade, commonly known as K-12 education. Qualifying scholarship expenses may include:

• Private school tuition
• Academic tutoring and educational support
• Services for students with special needs
• Books, school supplies and other learning materials
• Computers and other educational equipment
• Other qualifying expenses connected with a student's school enrolment or attendance

The tax credit benefits eligible donors, while SGOs distribute scholarship funds to qualifying students. Student eligibility and scholarship awards remain subject to the programme's requirements.

The credit is non-refundable, meaning it can reduce federal income tax liability but does not automatically generate a cash refund beyond the tax owed. The proposed regulations also provide for eligible unused credit amounts to be carried forward for up to five years, subject to the applicable conditions.

Taxpayers should also check the rules on charitable deductions. A contribution used to claim this federal credit cannot also be claimed as a charitable contribution deduction for federal tax purposes.

State Participation Could Affect Eligibility

The IRS announced on 8 June 2026 that 27 states had elected to participate in the programme. By October, the number had risen to 30, according to updated IRS guidance. However, a state's decision to participate does not automatically make every scholarship organisation eligible.

States must identify qualifying organisations and submit the required lists to the IRS. Participation remains voluntary, and the list of eligible organisations may change as states complete the necessary procedures. Taxpayers should check the latest IRS guidance before making a donation.

State Tax Credits Could Affect the Federal Benefit

With the credit scheduled to begin on 1 January 2027, taxpayers should verify their chosen organisation's eligibility and review the applicable federal and state tax rules before donating. For married couples, claiming the full $3,400 will depend on both spouses meeting the contribution requirements.