On Oct. 2, the Internal Revenue Service (IRS) issued regulations that determine how the Education Freedom Tax Credit (EFTC) will run and, in turn, how many states participate.
The EFTC — also known as the Federal Scholarship Tax Credit (FSTC), or IRS Section 25F — will allow individuals to receive federal tax credits for donations up to $1,700 to authorized scholarship-granting organizations (SGOs), but states must opt in annually to participate. The program is set to begin on Jan. 1, 2027.
The regulations came in two parts. The IRS proposed regulations related to student eligibility, calculating taxpayer credits, SGO operations, and state operations and requirements. It also issued temporary regulations that will implement some provisions of the proposed regulations early. The temporary regulations include procedural requirements for states and SGOs listed in the proposed regulations, which the IRS said must be effective for the program to begin in 2027.
