Section 25F, enacted as part of the One Big Beautiful Bill Act, creates a permanent $1,700 federal tax credit for qualifying cash contributions to scholarship granting organizations (SGOs), effective for taxable years ending after December 31, 2026.
Section 25F: A New Federal Tax Credit for Donors
For the first time, federal law will provide a significant tax incentive for donations to organizations that fund scholarships for eligible elementary and secondary school students, including those attending private and parochial schools. Beginning in 2027, individuals who make such contributions to a qualifying SGO within a participating state may be eligible for the credit.
Because participation is voluntary, the credit is only available in states where the governor (or another official designated under state law) has elected to participate and submit a certified list of qualifying SGOs to the IRS by January 1 of each applicable year, or as early as practicable for the first year the provision takes effect.
If all applicable requirements are met, the individual may claim a non-refundable federal tax credit of up to $1,700—dollar-for-dollar against their federal income tax liability—with any unused credit carried forward for up to five years. Federal credit must be reduced dollar-for-dollar by any state credit received for the same contribution, and any federal charitable deduction must be reduced by the credit amount, i.e., no double-dipping.
A credit is distinct from a deduction. A credit directly reduces the amount of tax you owe, making it potentially more valuable than a charitable deduction of the same amount, depending on your tax bracket.
Section 25F Tax Planning Opportunities
Organizational Clients: Churches, Education Nonprofits, & Similar Entities
Section 25F(c)(5) generally provides that the term “scholarship granting organization” means any organization described in §501(c)(3) that is a public charity (private foundations are not eligible) and meets certain other requirements.
Depending on their existing structure, churches and education nonprofits may wish to explore forming a new entity to operate as an SGO. Organizations will also want to make sure they are positioned to satisfy the SGO requirements. Professionals at Forvis Mazars can assist at each stage, including initial structuring, obtaining IRS recognition of exemption (if necessary), and satisfying state-level requirements. Given the steps involved, organizations that begin planning now can be well positioned ahead of the 2027 effective date.
State & Governmental Entities
Each state must affirmatively elect to participate. States making an advance election for 2027 must file IRS Form 15714. State agencies and governors’ offices may benefit from outside guidance on navigating the election process, certification requirements, and building out their SGO approval infrastructure. States with existing school choice frameworks may need help adapting those programs to align with the new federal requirements.
Individuals
For those individuals with a current or anticipated federal tax liability, a $1,700 credit represents a meaningful dollar-for-dollar reduction in taxes owed, making this worth evaluating as part of a broader tax plan.
Where Things Stand: IRS Guidance & Timeline
The IRS has issued initial guidance through Notice 2025-70 (Internal Revenue Bulletin (IRB) 2025-50, December 8, 2025) and Revenue Procedure 2026-6 (IRB 2026-02, December 12, 2025). Significant additional guidance is expected before the 2027 effective date.
How Forvis Mazars Can Help
The 2027 effective date provides a meaningful window to plan. Our knowledgeable Tax team will continue tracking IRS guidance, state elections, and SGO approvals as they develop. If you have questions about the new §25F, including whether it creates tax planning opportunities for you or your organization, or need assistance, please reach out to a professional at Forvis Mazars.
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