What's Happening?
The Internal Revenue Service (IRS) has announced a new tax credit program set to take effect in 2027, aimed at encouraging donations to Scholarship Granting Organizations (SGOs). This initiative, part of the One Big Beautiful Bill Act (OBBBA), allows
individual taxpayers to claim a nonrefundable tax credit of up to $1,700 for contributions to SGOs that provide scholarships for K-12 education expenses. The program is designed to support low- and middle-income students by incentivizing private contributions. States can opt into the program by making an 'advance election,' which enables them to prepare for offering this benefit. The IRS has issued Revenue Procedure 2026-6, detailing how states can participate and submit lists of qualifying SGOs. Contributions to SGOs in non-participating states will not qualify for the credit.
Why It's Important?
This tax credit program is significant as it could reshape state education policies and influence individual and business tax planning. By encouraging private donations to SGOs, the program aims to enhance educational opportunities for students from low- and middle-income families. However, the program's impact will vary depending on state participation, potentially leading to disparities in access to the credit. The initiative reflects a broader trend of using tax incentives to drive private investment in public services, highlighting the role of federal policy in shaping educational funding.
What's Next?
The IRS plans to release additional guidance on the program, including final submission deadlines and procedures for future years. States interested in participating must submit their SGO lists and make an advance election by a date to be determined. Public comments are being solicited to refine the certification and management of state SGO lists, ensuring compliance and effectiveness. As states decide whether to participate, stakeholders such as educators, policymakers, and taxpayers will be closely monitoring the program's rollout and its implications for educational funding.
