Sources checked October 19, 2026. Editorial policy review is pending. The October proposed regulations are not final; reliance for 2027 contributions requires following them in full and consistently. T.D. 10057 has a December 1, 2026 effective date and September 1, 2026 applicability provisions. Check current IRS guidance before acting.
Key takeaways
- The EFTC is a federal credit, residents can claim up to $1,700 each whether or not their state opts in, by giving to an SGO listed by any participating state.
- Under the proposal, scholarships generally serve residents of states that list the SGO. School attendance alone does not establish residence. Narrow exceptions apply to qualifying Armed Forces dependents and dependents of individuals residing on Indian Lands.
- If 100,000 residents each make a qualifying $1,700 gift to SGOs serving other states, their gifts total exactly $170 million: 100,000 × $1,700 = $170,000,000. Larger gifts could raise the total, but this example is not a forecast of participation or local economic effects.
- Participation requires no new state scholarship appropriation; private contributions fund SGO scholarships, and the federal credit provides the donor incentive. Administrative work can create costs. The state’s job is administrative, one calendar year at a time. For 2027: Form 15714 by January 1, the SGO list by February 15.
How participation affects scholarship access
The Education Freedom Tax Credit (§25F) is a federal credit, so eligible donors may claim it regardless of their state’s participation by contributing to an eligible listed SGO. State participation generally governs resident students’ scholarship access, subject to the proposed residence exceptions. An SGO’s headquarters and a school or provider’s location do not, by themselves, determine where an eligible scholarship may be used.
It comes down to how the money moves. A donor gives to an SGO and claims the federal credit. That SGO awards scholarships to eligible families in a state that has opted in and submitted a list of qualifying SGOs to the IRS, an election made by the governor or whoever state law designates. Without a completed election, that state cannot provide a qualifying §25F list. An organization headquartered there may still qualify through another covered state if it meets that state’s authorization, charity-law and listing requirements. Student-residence requirements remain separate from the organization’s headquarters.
Treasury’s proposed regulations (October 2026), which taxpayers, SGOs, and states may rely on for 2027, settle both halves. On the donor side, “a taxpayer may make a qualified contribution to any SGO on any State SGO list, regardless of the taxpayer’s State of residence.” On the student side, a scholarship follows where the student lives: an SGO may fund only students who reside, under state law, in a state whose list includes it. “Attending school in a State or purchasing goods or services in a State is not sufficient” to count a student as within that state. Treasury spells out the consequence: a student who lives in a state that hasn’t opted in but attends school in one that has can’t receive a §25F scholarship from an SGO in either state. The exceptions are narrow: dependents of members of the Armed Forces, and dependents of individuals residing on Indian Lands. More in give to any of 30 states, scholarships follow residence.
An illustrative funding calculation
If 100,000 residents each make a qualifying $1,700 gift to SGOs serving other states, their gifts total exactly $170 million: 100,000 × $1,700 = $170,000,000. Larger gifts could raise the total, but this example is not a forecast of participation or local economic effects.
Potential effects for communities
The total depends on actual donor participation and award decisions. Treasury and the IRS estimate that by 2030, more than 11 million taxpayers could give nearly $26 billion a year to SGOs in participating states, funding as many as 2.2 million scholarships (estimates from Treasury’s October 2026 release, not a state-by-state forecast). Student-residence rules generally connect awards to states that list the SGO, subject to narrow exceptions. These estimates do not establish a local economic loss for a nonparticipating state:
- Families generally lack a scholarship pathway through their home state if it does not complete its election. The proposed residence exceptions may apply to qualifying Armed Forces dependents and dependents of individuals residing on Indian Lands. Awards must cover qualified expenses and meet the remaining eligibility rules.
- Schools, tutors, and service providers may serve eligible students across state lines. A state’s nonparticipation does not itself prohibit its schools or providers from receiving payments for qualified expenses of eligible students from covered states.
- Local economies may experience different effects depending on actual giving, awards and provider locations. The regulations do not establish a particular state’s economic loss.
State funding and administrative responsibilities
Participation does not require a state scholarship appropriation. The credit is federal, and no state education dollars fund the federal scholarships. A participating state’s role is administrative. Under Treasury’s temporary regulations, effective December 1, 2026 with specified September 1, 2026 applicability provisions, it registers in an IRS State section 25F portal, makes its election one calendar year at a time, and submits a list that must include every organization located in the state that seeks inclusion and meets the federal requirements. It reviews applicants and their annual audits, removes an SGO only through a due-process procedure, and may not add conditions more restrictive than federal law. That work can create administrative costs, even though no state scholarship appropriation is required. For 2027, the advance election (Form 15714) is due by January 1, 2027 and the SGO list by February 15, 2027.
Completing an election provides a state listing pathway and generally enables resident students’ scholarship access; it does not guarantee awards or local spending. No state scholarship appropriation is required, but administrative costs need assessment. Thirty states had elected to participate in 2027 as of August 2026, by Treasury’s count. To see where your state stands and who decides, check the IRS state-participation roster.
Frequently asked questions
If my state opts out, can I still claim the EFTC credit?
Yes. Eligible taxpayers may generate up to $1,700 of new federal credit per year from qualified contributions, regardless of their state’s participation; a jointly filing couple may generate up to $3,400 if each spouse makes qualifying contributions. Available tax liability, state-credit reductions and carryforward rules still apply. Gifts may go to an eligible SGO listed by any covered state. Under the proposal, awards generally serve students residing in a state that lists the SGO, with narrow exceptions for qualifying Armed Forces dependents and dependents of individuals residing on Indian Lands. The organization’s headquarters is a separate question.
Why don't scholarships reach my state if it opts out?
Scholarships flow through SGOs listed by covered states. Under the proposal, awards generally serve students residing in a state whose list includes the SGO. If your state does not complete its election, it cannot provide its own qualifying list. An organization headquartered there may nevertheless qualify through another covered state if it meets that state's authorization, charity-law and listing requirements. School attendance alone does not establish student residence. The proposal provides narrow exceptions for qualifying Armed Forces dependents and dependents of individuals residing on Indian Lands.
Does opting in cost the state money?
Not for scholarships. The credit is federal, there is no state appropriation, and no state education dollars fund the scholarships. A participating state's role is administrative: under Treasury's temporary regulations it registers in an IRS portal, makes its election, reviews the organizations that apply, certifies its list of every qualifying SGO that seeks inclusion, and runs a due-process procedure for removals. That is staff work, not new scholarship spending.
Can my state change its mind later?
Yes. An election covers one calendar year, so a state that sits out one year can participate in a future year, and a participating state can decline to renew. Once a state completes its election for a year, it can't revoke it for that year. For 2027, a state must file its advance election on Form 15714 by January 1, 2027 and submit its SGO list by February 15, 2027; a state that elects for the first time in a later year follows procedures the IRS has said it will issue. Without a completed election, the state cannot provide a listing pathway for that year. Eligible donors may still contribute to SGOs listed elsewhere; the proposed student-residence rules and their narrow exceptions govern scholarship access.
Sources and guidance
Sources checked October 19, 2026. Proposed rules and projections are identified in the article. Consult the latest official guidance before acting.
