The U.S. Department of the Treasury has issued new guidelines for states, scholarship-granting organizations (SGOs), and taxpayers in preparation for the federal scholarship tax credit program launching in January. Established under President Donald Trump’s 2025 tax law, the Education Freedom Tax Credit allows individuals to claim a tax credit up to $1,700 for donations to approved SGOs. Taxpayers can contribute to eligible organizations irrespective of their residence.
The tax credit cap of $1,700 applies to individual donors, while married couples filing jointly can claim a $3,400 credit. Contributions are geared towards funding K-12 scholarships, mainly for private schools, but also cover tutoring, books, supplies, and disability services in public schools.
Thirty states have agreed to participate, with a deadline for states to opt in by Jan. 1 and submit SGO lists by Feb. 15. A Treasury official clarified that states must include any organization meeting federal requirements on their list and cannot selectively choose SGOs.
Participating states include Alabama, Alaska, Arkansas, Colorado, Florida, and others. New York’s Governor plans to join pending a review of federal rules. Democratic governors in Hawaii, Minnesota, New Mexico, and Oregon have declined participation.
Republican and Democratic leaders have clashed over program inclusion in some states. For instance, North Carolina and Kansas saw GOP legislatures override Democratic vetoes to join, whereas Arizona and Wisconsin governors successfully vetoed GOP efforts.
Scholarships are available for students in households earning up to 300% of the area’s median income, covering about 95% of American children. Estimates suggest between 600 and 700 SGOs could exist by 2030, with contributions from over 11 million taxpayers.
States have limited authority to regulate SGOs, which must undergo annual audits. SGOs are required to be 501(c)(3) nonprofits, spend at least 90% of income on scholarships, and serve at least 10 students not all attending the same school. Donations cannot be earmarked for specific students, and SGOs must prioritize renewing scholarships for previous recipients and their siblings.
Treasury forecasts predict up to 2.2 million scholarships annually, with nearly $26 billion in contributions by 2030.
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