How Could the New Education Freedom Tax Credit Impact Your 2027 Charitable Giving Strategy?

A new opportunity for education-focused giving

For high-net-worth individuals and families, charitable giving is often an important part of both financial planning and supporting causes that matter to you. Beginning in 2027, a new federal tax credit may offer another way to support K–12 education while potentially reducing your federal income tax liability.

Established under the One Big Beautiful Bill Act, the Education Freedom Tax Credit (EFTC) allows eligible individuals to receive a dollar-for-dollar federal income tax credit for qualifying cash contributions to approved Scholarship Granting Organizations (SGOs).

As you evaluate your charitable giving and tax planning strategies for the coming year, understanding how this credit works can help you determine whether it aligns with your financial and philanthropic goals.

Understanding the Education Freedom Tax Credit

The EFTC is a new federal tax incentive designed to encourage private contributions that support educational opportunities for eligible K–12 students.

Beginning January 1, 2027, qualifying taxpayers may receive:

• Up to $1,700 annually in federal income tax credits for eligible individual contributions.
• Up to $3,400 annually for married couples filing jointly, provided each spouse makes at least $1,700 in qualifying contributions.

Unlike a traditional charitable deduction, which reduces taxable income, a tax credit directly reduces the amount of federal income tax owed.

The credit is available regardless of whether the taxpayer itemizes deductions.

Claiming the Credit

To claim the credit, you must make a cash contribution to an eligible SGO in a participating state.

There are a few important limitations to note.  First, the federal credit is reduced by any state tax credit allowed for the same qualified contribution. Second, any contribution used to claim the credit cannot also be treated as a charitable contribution deduction. Lastly, contributions made through partnerships or S corporations do not qualify for the federal credit.

These requirements make it important to review how the EFTC may interact with your existing charitable giving arrangements before making a contribution.

Supporting K–12 education through charitable contributions

Beyond the potential tax benefits, the EFTC provides another way to support educational opportunities for eligible K–12 students.

Qualifying SGOs distribute scholarship funds to help families cover approved educational expenses. Depending on the student’s needs, these may include private school tuition, tutoring, special education services, educational therapies, and certain school supplies.

Under guidance issued by the U.S. Department of the Treasury and the Internal Revenue Service (IRS) in October 2026, students must meet specific eligibility requirements, including household income limitations. Generally, eligible students must come from households with income at or below 300% of the applicable area median gross income.

Although donors cannot direct their contributions to individual students, they can support organizations that provide scholarships to eligible families.

For individuals and families who already prioritize education in their philanthropic plans, the EFTC may offer another way to support those interests.

What Virginia taxpayers should know

The credit is available only if the relevant state voluntarily elects to participate, however Virginia was the first state to elect participation in the federal program. Note that additional administrative steps remain before qualifying contributions are eligible for a federal credit.

Virginia must submit a certified list of eligible SGOs by February 15, 2027, to participate for that year.

Importantly, organizations approved under Virginia’s existing Education Improvement Scholarships Tax Credits program do not automatically qualify under the new federal program.

Before contributing, taxpayers should verify that the intended organization meets the applicable federal and state requirements.

Planning ahead with Keiter

Contact your Private Client Services Opportunity Advisor to discuss how the Education Freedom Tax Credit may fit into your 2027 tax planning and charitable giving strategy. Email | Call 804.747.0000