--- title: 'The Education Freedom Tax Credit: What families of kids with disabilities need to know' description: A new federal tax credit program could help pay for private school and specialized services. Learn how it works and what it means for families of kids with disabilities. slug: education-freedom-tax-credit author: Alex Frost reviewer: Christopher D. Thomas, JD, PhD published: '2026-10-02T00:00:00.000Z' thumbnail: https://cdn-images.understood.org/p0qf7j048i0q/36YdDs0AeJOsGyCaaNRlvE/91bcdb27494cf4b814ede08e82aedcf3/GettyImages-1403495362__1_.jpg source_url: https://www.understood.org/en/articles/education-freedom-tax-credit lang: en --- # The Education Freedom Tax Credit: What families of kids with disabilities need to know ## Quick take - The Education Freedom Tax Credit (EFTC) launches in 2027. It gives individual donors up to $1,700 in federal tax credits for gifts to K–12 scholarship organizations. - Families who qualify can use EFTC scholarships to pay for things like tuition and fees, tutoring, and specialized services. - Two competing bills related to EFTC — one to repeal the credit, one to expand it nationwide — show how uncertain its future still is. If you’re raising a child with disabilities, keeping up with all the education news is important. But it can also be overwhelming, especially when there are changes to rules or funding. The [Education Freedom Tax Credit](https://www.ed.gov/media/document/education-freedom-tax-credit-fact-sheet-113147.pdf) (EFTC), which takes effect in 2027, is a new policy that you should know about.  Here’s the basic idea. The EFTC lets people donate to scholarship-granting organizations (SGOs). These are nonprofits that fund scholarships for school tuition, fees, and other education-related services and products. In return, donors get a federal tax credit of up to $1,700. Married couples filing jointly can donate up to $3,400 and claim the credit. That means every dollar they give, up to that amount, is one less dollar they owe in federal taxes.  The EFTC isn’t only about private schools. It’s also part of a bigger conversation about public school funding. If your child receives special education services, you probably have specific questions about what this means for your family. Here’s what to know so far, as we continue to learn more about how the credit and scholarships work. ## How the new tax credit works To understand the EFTC, it helps to know where it came from. Congress created it through H.R. 1, known in the media as the One Big Beautiful Bill — a major tax bill. The EFTC comes out of that same bill. [Stephanie Malia Krauss,](https://www.rehumaning.com/meetstephanie) a former school principal and education policy analyst who wrote *How We Thrive: Caring for Kids and Ourselves in a Changing World*, says it’s often pitched to families as a “financial pathway” — a way to help families afford a private school for their child. But the tax credit is for the donor, not the family.  Here are the basics, according to[ Janet R. Decker, PhD, JD](https://www.understood.org/en/people/janet-decker), professor of education law at Indiana University Bloomington: - A donor gives money to an SGO. - That gift lowers the donor’s federal tax bill, dollar for dollar, up to $1,700 for individuals and $3,400 for married couples filing jointly. - The SGO uses the donations to fund scholarships for eligible K–12 students. A few limits to know: - The credit can reduce a tax bill to $0, but it can’t create a refund. - Any credit a donor doesn’t use can carry forward for up to five years. - Contributions above the applicable $1,700 or $3,400 (if filing jointly) credit limit may qualify for a federal charitable tax deduction.   ### Which states are participating States choose whether to take part. As of publication, [according to the IRS:](https://www.irs.gov/government-entities/federal-state-local-governments/federal-scholarship-tax-credit-fstc) - 30 states have opted in. - New York has announced plans to join but hasn’t finalized them. - Two states’ governors — in Wisconsin and Arizona — have vetoed participation. - Four states have declined: Hawaii, New Mexico, Minnesota, and Oregon. As a donor, you can still claim the federal credit even if you live in a state that hasn’t opted in. You just have to donate to an SGO in a state that has.  ## Who qualifies for the scholarships A lot of families could technically qualify. A report from the [American Federation for Children,](https://www.federationforchildren.org/wp-content/uploads/2026/07/07.27.2026-EFTC-2-Pager-v2-2.pdf) one of the advocacy groups that pushed for the tax credit, estimates that more than 51 million students — about nine in 10 students nationwide — are eligible for a scholarship under the EFTC’s income rules.  The tax credit has an income limit of 300 percent of the area median income, adjusted for family size. Depending on where a family lives, that’s roughly $234,000 to $500,000 a year for a family of four.  No matter what, you must live in a state that has opted into the program to receive a scholarship. But being eligible doesn’t guarantee a scholarship. SGOs may choose their own additional priorities, like a family’s financial need or where they live. Or they may decide to give scholarships only for qualified expenses related to specific subject areas, like science or math. It’s up to the SGO, and states can’t make rules to limit their giving beyond what the regulations already say. But SGOs must give priority to students who got a scholarship the previous year, along with their siblings.  Under the proposed rules, SGOs will verify a student’s household income directly. They’d use documents like pay stubs, tax returns, IRS transcripts, W-2s. Or they’d verify through credit agencies or commercial data sources.  Some families won’t have to prove their income all over again. Under the proposed rules, the Treasury Department wants to make it easier for certain families to show they qualify, without extra paperwork. This simpler process would apply if: - Your child is in foster care - Your household is already enrolled in certain income-based assistance programs - Your child is already receiving special education or tutoring services through their school in a low-income area, like a Title I school Decker says the income limit alone could make about 90 percent of families eligible. That means the real decision comes down to the SGOs, not the income cutoff. As she puts it: “It will be a very low bar to be eligible for a scholarship. But the gatekeepers for who actually receives scholarships will be the SGOs ... there could be serious inequities that arise around who receives scholarships.” For example, she says that since SGOs make the decisions, they could choose to give $500 to one student but $50,000 to another. ## How qualifying families use the scholarship money The program covers more than just private-school tuition. You can use the scholarships to cover K–12 education expenses if your child is enrolled in a public, charter, religious, or private school. Homeschools and microschools may qualify, depending on how your state legally classifies them.  Covered expenses include: - Tuition and fees for private schools, subject to the priorities and conditions adopted by the SGO  - Tutoring - Books and supplies - Online classes - Special education services How much you actually get can vary a lot. There’s no minimum or maximum scholarship amount set by the rules so far, so some scholarships may be too small to cover a big expense like tuition. The federal rules determine which schools and expenses qualify. States can’t narrow that down any further by adding their own extra restrictions — like limiting which schools you can choose or which expenses the scholarships can cover.  But the rules on which services actually qualify are still thin. For example, there’s no clear definition yet of what counts as a “tutoring program,” one of the expense categories listed above. More details on qualifying expenses are expected by the end of 2026. ### SGOs have to exist first None of this money is available to you until an SGO exists to give it out. Dovi Geretz, founder of [eftccredit.com,](https://eftccredit.com/) says that supply is the real bottleneck right now: “The biggest constraint is supply, not demand. A donor can’t claim the credit unless there’s an SGO on a state’s list to receive the gift, and most of the organizations that will do this work are still being formed.”  Not just any organization can become an SGO. To qualify, an SGO has to: - Be a registered charitable nonprofit - Meet its state’s rules for accepting charitable donations - Follow any other state rules that apply to nonprofits in general - Register with the IRS through a separate online portal built for SGOs States that participate have to send the U.S. Department of the Treasury a list of every SGO in their state that meets these requirements. States can’t pick favorites — if an SGO qualifies, it has to be on the list. One more thing worth knowing: An SGO isn’t limited to the state it’s based in. The same SGO can operate in more than one state. ### What it could mean for kids with disabilities If you’re raising a child with disabilities, scholarship funds could help cover:  - Specialized tutoring - Afterschool programs - Educational therapies - Assistive technology - Specialized curricula - Private schools designed for specific learning needs  The most important point for families of kids with disabilities is this: [Private schools](https://www.understood.org/en/articles/school-choice-special-education?utm_medium=&utm_source=stacker&utm_campaign=stacker-tracking&utm_content=article) don’t have to follow the [Individuals with Disabilities Education Act](https://www.understood.org/en/articles/individuals-with-disabilities-education-act-idea-what-you-need-to-know?utm_medium=&utm_source=stacker&utm_campaign=stacker-tracking&utm_content=article) (IDEA). That means if you send your child to a private school using EFTC funds, your child won’t have the same legal protections or services as they did in the public school.  ## What the experts are saying Supporters say that the EFTC could give families more control over where and how their kids learn. They also point out that the scholarships aren’t just for private schools.  “Students don’t have to leave public education to benefit from it,” says [Thomas Arnett,](https://www.christenseninstitute.org/people/thomas-arnett/) senior research fellow in education at the Clayton Christensen Institute, a nonprofit, nonpartisan research organization. He explains that most voucher and education savings account (ESA) programs require students to leave public school to qualify. The EFTC doesn’t. It can cover expenses your child might have while attending public schools, too. But other experts have serious concerns about access, oversight, the effects on public schools, and which families will benefit. Decker says critics have already given the credit a blunt label: a “national private school voucher program funded through tax breaks for the wealthy that threatens to dismantle our system of public schools.” She’s concerned about where the money comes from and where it goes. She worries the credit gives the federal government a strong financial incentive to take funding away from public schools and toward private ones — funding she says could be “detrimental to students with disabilities and our democratic society.”  One specific worry she has is segregation. “Private schools do not have the same legal obligations to enroll or serve students with disabilities,” Decker says. She’s concerned that the credit could push more students with disabilities into religious and disability-specific private schools instead of general public ones.  Krauss shares a related concern about how the program will be carried out: “There’s such a lack of transparency and planning and capacity building connected to this going into effect, and how the dollars actually get to kids and families who need them.” ## Other bills that could change how EFTC works Congress isn’t done shaping the EFTC. Since it passed, lawmakers have introduced two more bills that would push it in opposite directions. One would end the program entirely before it even begins. Senators Mark Kelly and Mazie Hirono introduced the [Keep Public Funds in Public Schools Act](https://www.congress.gov/bill/119th-congress/senate-bill/4297/text) (S. 4297) in April 2026. It’s supported by more than 150 education and advocacy groups, including the National Education Association and the American Federation of Teachers. As of publication, it’s been sitting in the Senate Finance Committee since it was referred there in April. There’s no hearing or vote scheduled. The other bill would expand EFTC. Representative Adrian Smith introduced [H.R. 10412](https://www.congress.gov/bill/119th-congress/house-bill/10412/text) in September 2026. It would eliminate the rule requiring states to opt in. If this bill becomes law, students in every state would be eligible for the scholarships, no matter what their state decides.  Neither bill has passed as of publication. But together, they show just how unsettled the EFTC’s future still is. ## What families should do now The [Treasury Department’s proposed rules](https://public-inspection.federalregister.gov/2026-20277.pdf) to get the program started are open for public comments until the end of November 2026. Here’s the general timeline: - The program starts January 1, 2027. States must decide to join by then.  - States that opt in must finalize their list of SGOs by February 15, 2027. But SGOs that already meet the requirements and have completed their paperwork can accept donations starting January 1, 2027. - Donors won’t get their tax credit until 2028. - The final regulations won’t be in place until 2028. - Congress could still change or repeal the program at any point. Here’s what you can do now to stay ahead of it: - Check whether your state is participating and follow [updates on your state’s status.](https://ballotpedia.org/State_participation_in_the_Education_Freedom_Tax_Credit#Participating_states) - Watch for which SGOs get approved, how applications work, which expenses qualify, and when scholarship applications open. Decker also suggests watching for SGOs that show interest in providing scholarships for students with disabilities. - Share your opinion during public comment periods. - Follow other [education news](https://www.understood.org/en/news?utm_medium=&utm_source=stacker&utm_campaign=stacker-tracking&utm_content=article) — like how the [Trump administration is changing federal oversight of special education](https://www.understood.org/en/articles/department-of-education-closes-ieps?utm_medium=&utm_source=stacker&utm_campaign=stacker-tracking&utm_content=article) — to understand the bigger picture around this tax credit. If you care about how this could affect your child’s education, staying informed now is the best way to be ready for whatever happens next. *Thumbnail image credit: LordHenriVoton via Getty Images* --- ## Frequently asked questions ### How do I apply for a scholarship from an SGO? You can start applying on January 1, 2027. First, check whether your state is participating. Then follow the application steps set by a participating SGO. Each SGO decides who’s eligible and which expenses the scholarship covers. ### Is an SGO scholarship the same as a school voucher? The EFTC is often confused with a school voucher, but the two work differently. The biggest difference is how they’re funded. A school voucher uses public tax dollars directly to pay for private school tuition. The EFTC works the other way: It’s funded by private donations to SGOs. Those donations earn the donor a tax credit. The SGOs then grant scholarships to K–12 students. ### Who gets the EFTC tax credit? The donor gets the tax credit, not the family receiving the scholarship. According to a report from the American Federation for Children, nearly three-quarters of taxpayers would be eligible to claim the credit if they donated to an SGO. --- ## Explore related topics and articles - [School choice and special education: What to know about public, charter, and private schools](https://www.understood.org/en/articles/school-choice-special-education) - Public, charter, and private schools handle special education differently. Your child’s rights depend on which one you pick. Here’s what to know. - [How is special education funded?](https://www.understood.org/en/articles/how-is-special-education-funded) - No single source pays for your child’s special education services. Here’s how federal, state, and local funding fit together, and what could change in 2027. - [What is the Individuals with Disabilities Education Act \(IDEA\)?](https://www.understood.org/en/articles/individuals-with-disabilities-education-act-idea-what-you-need-to-know) - The Individuals with Disabilities Education Act \(IDEA\) gives kids and parents rights in the special education process. But it does so much more. --- ```json [{"@context":"https://schema.org","@type":"WebPage","@id":"https://www.understood.org/en/articles/education-freedom-tax-credit#webpage","url":"https://www.understood.org/en/articles/education-freedom-tax-credit","description":"A new federal tax credit program could help pay for private school and specialized services. Learn how it works and what it means for families of kids with disabilities."},{"@context":"https://schema.org","@type":"BreadcrumbList","itemListElement":[{"@type":"ListItem","position":1,"item":{"@id":"https://www.understood.org/en/articles/education-freedom-tax-credit","name":"The Education Freedom Tax Credit: What families of kids with disabilities need to know"}}]},{"@context":"https://schema.org","@type":"NewsArticle","datePublished":"2026-10-02T00:00:00.000Z","description":"Learn how the Education Freedom Tax Credit works, who qualifies, and what it means for families of kids with disabilities. ","headline":"The Education Freedom Tax Credit: What families of kids with disabilities need to know","url":"https://www.understood.org/en/articles/education-freedom-tax-credit","publisher":{"@type":"Organization","@id":"https://www.understood.org/#organization","name":"Understood for All Inc","logo":"https://cdn-images.understood.org/p0qf7j048i0q/307jFAYQevghG8nQMCjh89/ccdbbec895765824db43f6d30b496e83/logo_lockup_navy.jpg"}},{"@context":"https://schema.org","@type":"FAQPage","mainEntity":[{"@type":"Question","name":"How do I apply for a scholarship from an SGO? ","acceptedAnswer":{"@type":"Answer","text":"You can start applying on January 1, 2027. First, check whether your state is participating. Then follow the application steps set by a participating SGO. Each SGO decides who’s eligible and which expenses the scholarship covers. "}},{"@type":"Question","name":"Is an SGO scholarship the same as a school voucher? ","acceptedAnswer":{"@type":"Answer","text":"The EFTC is often confused with a school voucher, but the two work differently. The biggest difference is how they’re funded. A school voucher uses public tax dollars directly to pay for private school tuition. The EFTC works the other way: It’s funded by private donations to SGOs. Those donations earn the donor a tax credit. The SGOs then grant scholarships to K–12 students. "}},{"@type":"Question","name":"Who gets the EFTC tax credit? ","acceptedAnswer":{"@type":"Answer","text":"The donor gets the tax credit, not the family receiving the scholarship. According to a report from the American Federation for Children, nearly three-quarters of taxpayers would be eligible to claim the credit if they donated to an SGO. "}}]}] ```