What The Treasury’s Education Freedom Tax Credit Guidance Means for SGOs, Donors, and Advocates

For months, one significant question about the Education Freedom Tax Credit has been looming: what will the rules actually require? On June 9, 2026, the Department of the Treasury provided a roadmap of its expected education freedom tax credit guidance in a preview of the forthcoming Section 25F rules.

If you’re weighing whether to form a Scholarship Granting Organization (SGO), advocating for the program, or planning to donate to an SGO, here’s what to expect and what it could mean for you.

Education Freedom Tax Credit: A Quick Recap

Beginning in 2027, an individual can claim a dollar-for-dollar federal tax credit of up to $1,700 for a cash contribution to a qualified SGO in a state that has opted in to the new federal SGO tax credit program. Those contributions may fund scholarships that expand education options for eligible K–12 students, helping families afford things like private school tuition, academic tutoring, and special-needs services across public, private, and homeschool settings. The credit is nonrefundable, so it offsets what you owe but won’t turn into a refund check. Any unused amount carries forward for up to five years. 

The Education Freedom Tax Credit was created by the 2025 federal tax law known as the One Big Beautiful Bill Act and is codified in section 25F of the tax code. This post focuses on the Treasury Department’s update on what the new rules will likely be.

Two Things to Know About the Announcement

On June 9, 2026, Deputy Assistant Secretary for Tax Policy Kevin Salinger outlined several issues that the Treasury expects to address in forthcoming proposed regulations. The preview touched on everything from spending rules to audits to donor reporting, and I’ll walk through the highlights below. But first, there are important things worth keeping in mind:

• The Treasury expects to issue the proposed regulations by the end of September 2026 and make them applicable for the 2027 tax year.
• This is a preview of proposed rules, not final law. Salinger was explicit that the guidance addressed in the preview remains subject to ongoing legal review. While they are useful for planning,  they may change or evolve in the next few months.

Rather than recap every point of the preview, I’ll focus on what the preview means in practice, first for organization planning to form an SGO and then for advocates and donors.

What the Proposed Treasury Rules Mean for SGOs

If you’re considering forming or operating an SGO, the preview signaled how Treasury intends to handle several compliance matters:

• SGOs must spend at least 90% of their income on scholarships, and the Treasury may make that standard easier to measure. Normally, that would be 90% of all the money the organization takes in. But the Treasury’s preview said groups that are primarily scholarship-granting could instead hold scholarship funds in a separate account set up for this program. Money kept in that account and spent on scholarships would count toward the requirement — a simpler way to show you’ve met it. It’s a bookkeeping decision worth making ahead of time.
• An SGO has to be tied to a participating state, and the bar for that looks reasonable. Because the credit only works in states that opt in, an SGO has to be located in one of those states to be on its list. The Treasury’s preview said an organization would count as located there if it’s authorized to do business in the state and follows that state’s general rules for charities. States would not be allowed to pile on extra SGO-specific requirements stricter than those that federal law already sets.
• You can run an SGO in several states at once. Treasury’s preview said an SGO may appear on more than one state’s list, provided it’s authorized to do business in that state, complies with state charitable-organization rules,  and keeps a separate Section 25F account for each state. 
• Plan for an annual audit. According to the Treasury’s preview, every SGO would have to get a yearly independent audit covering both its finances and its scholarship operations, then provide it to each state that lists it. Smaller organizations may get a streamlined option: a review by an internal committee unrelated to management, signed under penalties of perjury.
• Donor reporting would use a unique donor number. Instead of collecting donors’ Social Security numbers, an SGO would give each donor a written acknowledgment with an IRS-generated unique donor number, then report contributions to the IRS using that number. That’s good news for donor privacy and for your data-handling obligations.
• An IRS portal is planned. The Treasury’s preview said the rules are expected to include an IRS web portal where SGOs can manage their administration and reporting in one place. Its full functionality may come in stages, though, rather than being ready on day one.
• School and eligibility definitions are taking shape. According to the Treasury’s preview, “school” would be defined broadly as determined under state law to include public, private, and religious K–12 schools, qualifying homeschools, and schools operated by federally recognized Tribes. The Treasury also signaled that foster children could satisfy the income requirement without separate income verification and that safe harbors for students attending schools in low-income areas are under consideration.

Each of these is something an organization can begin planning around now, even before the regulations are final.

What The Treasury’s Education Freedom Tax Credit Guidance Means for Advocates and Donors

If you’re championing the Education Freedom Tax Credit or planning to donate, it’s important to consider the following:

• The timeline is firming up. Treasury expects to release the proposed rules by the end of September 2026, and says states, SGOs, and taxpayers can rely on them for the 2027 tax year. The credit itself kicks in for contributions made on or after January 1, 2027. 
• There will be a chance to weigh in. Proposed regulations go through a public comment period, and the Treasury said it welcomes input on open questions. If you have a stake in the outcome, that’s your opportunity to speak and be heard. 
• State opt-in is still required. The credit only reaches your community if your state opts in. If you want to help, I’ve written about how to encourage your state to participate, and you can look at how Oklahoma opted in as a model.
• Documentation. The mechanics for giving — the unique donor number and the $1,700 max credit — are taking shape. SGOs still also need to provide donors a timely written acknowledgment and report contributions to the IRS.

Though the rules have not been finalized, there is plenty that can be done now to prepare. A good tax attorney can help clarify your next steps.

Frequently Asked Questions

How a Tax Attorney Can Help

A program this new comes with a lot of moving parts, and the organizations and people that prepare early will be the ones ready to act the day the rules land. Getting that foundation right is much easier with the help of a tax attorney. 

At Gammon & Grange, helping nonprofits form and stay compliant is central to our work, and I’ve been advising organizations on SGO formation and compliance as the rules around this tax credit develop. If you’re weighing whether forming an SGO makes sense, or simply want to understand how these rules affect your organization, your advocacy, or your giving, I’d love to talk! Please reach out to me, Jennifer Kim Nguyen.

This post provides general information about a developing legal and tax issue and is for informational purposes only. It is not legal advice and does not create an attorney-client relationship. Please consult a qualified professional about your specific circumstances.