What Happens After You Participate in the Education Freedom Tax Credit?

When you participate in the Education Freedom Tax Credit (EFTC), the story does not end with a contribution or a tax credit. It begins with the possibility of helping more students access educational opportunities where they can thrive and reach their full potential.

Through the federal initiative, qualifying contributions to Scholarship Granting Organizations (SGOs) can help fund scholarships for eligible students. Those scholarships can give families more resources to pursue educational opportunities that best fit their children’s needs.

Here’s what happens along the way.

It Starts With a Student

For families, an educational opportunity can depend on having access to a learning environment or resources that best fits their child’s needs.

The EFTC was created to expand scholarship opportunities for eligible K-12 students. Qualifying SGOs receive contributions and use those funds to provide scholarships under federal requirements.

That means participation connects individuals and communities with a larger goal: helping make more educational opportunities possible for students.

Contributions Help Create Scholarship Opportunities

A qualifying contribution does not go directly from one participant to a particular student.

Instead, qualifying contributions are made to an eligible SGO. The organization then administers scholarship funds according to federal requirements.

Under the EFTC, participants cannot earmark a qualified contribution for a specific student. SGOs are responsible for awarding scholarships to eligible students and following federal requirements governing how those funds are managed and used.

This structure helps keep the focus on expanding scholarship access rather than directing funds to an individual recipient.

ACE Helps Steward the Scholarship Process

ACE Scholarships brings more than 25 years of scholarship experience to this work.

ACE has delivered more than 121,000 scholarships and distributed more than $395 million in scholarships and education savings accounts. Those figures reflect ACE’s experience helping families, schools, and communities navigate scholarship opportunities at scale.

As the EFTC develops, ACE’s role is to serve as a trusted guide and bring its scholarship administration experience to the emerging federal landscape.

That stewardship matters because an SGO does more than receive contributions. It must administer scholarship funds, determine eligibility according to applicable requirements, maintain required records and accounts, and ensure qualified funds support eligible students and expenses.

The federal initiative also includes requirements governing scholarship reach, student eligibility, SGO spending, and the handling of qualified contributions.

How Does the EFTC Process Work?

At a high level, the pathway looks like this:

Participant → qualifying SGO → scholarship opportunity → eligible student

An individual makes a qualifying cash contribution to an SGO that meets the requirements of Internal Revenue Code Section 25F and is included on the applicable participating state’s qualifying SGO list.

The SGO then manages those funds under federal requirements and awards scholarships to eligible students.

For families, the result is expanded access to scholarship opportunities. For donors, it is a way to direct qualifying resources toward educational opportunity while potentially receiving a federal tax credit up to $1,700 per individual taxpayer, or $3,400 for married couples filing jointly.

An important note: The same dollars cannot be used for taking more than one credit, so advisors would be wise to encourage their clients to pursue the maximum federal credit in its entirety, and then consider state credit options.

State participation is an important part of this process. A state’s initial decision to opt-in does not by itself mean every SGO in that state automatically qualifies for the federal initiative. Federal EFTC status depends on the applicable state’s qualifying SGO list and other Section 25F requirements.

Where Does the Tax Credit Come In?

Beginning January 1, 2027, eligible individual taxpayers may claim a federal income tax credit for qualifying cash contributions to qualifying SGOs.

The credit is limited to up to $1,700 per individual taxpayer, or $3,400 for married couples filing jointly (subject to federal requirements and tax liability limitations). It is nonrefundable, which means it can reduce federal income tax liability but does not independently create a refund when the credit exceeds that liability. Qualifying unused credit may generally be carried forward for up to five taxable years.

Individual tax circumstances can vary, so participants should consult an appropriate tax professional when evaluating how the credit may apply to them.

Participation Can Help Make Opportunity Possible

The tax credit is an important part of the EFTC, but it is not the end of the story.

The larger purpose is the scholarship opportunity that a qualifying contribution can help create.

A donor contributes. An SGO stewards the funds. Scholarships help eligible students pursue educational opportunities. And families gain another potential pathway to an environment that best fits their children’s needs.

That is how participation in the Education Freedom Tax Credit can help make educational opportunity possible.

Claim Your Federal Tax Credit to learn more about the Education Freedom Tax Credit and how participation works.