Federal Scholarship Tax Credit Program Moves Toward 2027 Launch; Michigan Opt-In Status Pending
Background
The federal “One Big Beautiful Bill Act” created a new scholarship tax credit program through the addition of 26 U.S.C. § 25F (Section 25F). The program is intended to encourage private donations to Scholarship Granting Organizations (SGOs), which use those funds to provide K-12 educational scholarships for eligible students. The program applies to qualifying contributions made on or after January 1, 2027.
How the Program Works
Beginning January 1, 2027, eligible individual taxpayers who are U.S. citizens or residents may claim a nonrefundable federal income tax credit for qualifying cash contributions made to a qualifying SGO, subject to an annual cap of $1,700 per taxpayer. Any unused credit generally may be carried forward for up to five years.
To qualify, contributions generally must be made to an SGO identified by a participating state. Those organizations then use contributed funds to award scholarships for qualified elementary and secondary education expenses.
In general, eligible students are those who are eligible to enroll in a public elementary or secondary school and whose household income for the prior calendar year does not exceed 300% of the area median gross income. The law incorporates a broad range of K-12 educational expenses under existing federal education expense provisions.
The credit is reduced by any state tax credit claimed for the same contribution, and taxpayers may not claim both the federal tax credit and a charitable deduction for the same contribution.
Michigan Status
Participation in the program is voluntary. For each calendar year, participating states generally must elect to participate and identify qualifying SGOs before organizations within the state can operate under the federal program.
As of the date of this article, Michigan does not appear on the IRS list of states that have made an advance election to participate in the Section 25F program for 2027, and no Michigan SGOs have been identified under the federal framework.
Regulations Expected This Fall
Although the program becomes operational on January 1, 2027, significant implementation guidance remains forthcoming. On June 10, 2026, the U.S. Department of the Treasury announced that proposed regulations implementing Section 25F are expected to be issued by the end of September 2026. Treasury also indicated that states, SGOs, and taxpayers are expected to be able to rely on those proposed regulations for the 2027 tax year.
Treasury has indicated that the regulations are expected to address key implementation issues, including state participation procedures, SGO eligibility requirements, scholarship administration, audit requirements, reporting obligations, and student eligibility verification.
Looking Ahead
Miller Johnson will continue to monitor developments related to Section 25F, including anticipated federal guidance and any future action by Michigan regarding participation in the program, and will provide updates as appropriate. For inquiries, please contact Eric Feldman at feldmane@millerjohnson.com or (313) 435-2355.