Federal school choice tax credit: States not yet on IRS list face Jan. 1 deadline to opt in

States that have not yet signed on to the nation’s first federal school choice tax credit have less than two months to decide. Under rules proposed by the Treasury Department and the IRS, a state that wants its families to benefit in 2027 must file its election on or before Jan. 1, 2027.

Where the states stand

The IRS list of states that have elected to take part in 2027 shows 30 states as of Oct. 22. Florida is on it, along with Texas, Georgia, North Carolina, Ohio and Tennessee. Colorado and Virginia are also listed.

New York does not yet appear on that IRS page, but Gov. Kathy Hochul said on Oct. 9 that the state would participate. Hochul said she had insisted that public school students be able to benefit, and that after reviewing the federal rules she believed the program could bring “millions of additional dollars” to New York students “without taking a single dollar from public schools or our state or local budgets.”

Several large states are not on the IRS list, including Arizona, California, Pennsylvania, Michigan and Wisconsin.

How the credit works

Starting Jan. 1, 2027, individual taxpayers can claim a federal income tax credit of up to $1,700 for cash donations to approved scholarship granting organizations (SGOs). Married couples filing jointly can each claim $1,700, for up to $3,400. The credit is nonrefundable.

Scholarships can cover private school tuition, tutoring, special needs services, books, supplies, computers and other qualifying K-12 costs, according to the IRS announcement. The proposed rule describes eligible students as those in households with income no greater than 300% of area median gross income. Treasury and the IRS estimate that about 96% of children in participating states would qualify under the proposed rules.

Federal officials project the program could grow to nearly $26 billion in donations a year by 2030, funding as many as 2.2 million scholarships annually.

Why the state decision matters

The credit is federal, but it only flows to scholarship groups in states that opt in. The IRS says taxpayers cannot claim the credit for donations in a state until that state elects to participate and submits its list of approved SGOs. The IRS release also says donors may give to an eligible SGO regardless of where they live. In practice, that means a taxpayer in a state that sits out could still claim the credit by giving to a scholarship group in a participating state, while students in the nonparticipating state would not receive those scholarships.

The decision is not permanent in either direction. The proposed rule says an election covers a single calendar year, so governors will face the question again each year. For 2027 only, states that file by Jan. 1 have until Feb. 15, 2027, to submit their SGO lists.

The proposed rule would also bar participating states from imposing SGO requirements stricter than federal law, including limits based on the type of school a student attends.

The Florida angle

In Florida, preparations are already underway. Step Up For Students, which says it will serve more than 500,000 Florida students this year, has announced Step Up, Step Further, a scholarship fund built on the federal credit that will accept donations starting Jan. 1, 2027. Step Up says the money can help both public and private K-12 students, and that families may be able to combine it with existing state scholarships, subject to program rules. Its parent guide says families earning up to 300% of their county’s median income may qualify. Applications are not open yet.

What’s next

Public comments on the proposed rule are due Dec. 1, and a public hearing is scheduled for Dec. 15 at 10 a.m. ET, according to the Federal Register notice. The hearing will be canceled if no outlines of topics are received by Dec. 1. Education Press will track which states join before the Jan. 1 deadline.