Families of children with disabilities should watch for a major change in education financing that arrives in 2027. The Education Freedom Tax Credit (EFTC), created by the recent federal tax package, allows donors to receive a federal tax credit of up to $1,700 for each contribution made to a scholarship‑granting organization (SGO). Married couples filing jointly can claim a credit of up to $3,400.

How the credit works

Donors give money to SGOs, which are nonprofit groups authorized to award scholarships for tuition, fees and other education‑related expenses. The credit reduces the donor’s federal tax liability dollar‑for‑dollar, up to the stated limits. The credit is available regardless of the donor’s state of residence, but the scholarship can only be used in states that have opted into the program.

Eligibility and income limits

According to a report from the American Federation for Children, more than 51 million students – roughly nine in ten nationwide – could qualify under the EFTC’s income rules. The credit’s income ceiling is set at 300 percent of the area median income, adjusted for family size, which translates to roughly $234,000 to $500,000 for a family of four, depending on location.

Eligibility alone does not guarantee a scholarship. SGOs retain discretion to prioritize applicants based on additional criteria such as financial need, geographic location or specific subject‑area expenses. They must, however, give priority to students who received a scholarship the previous year and to their siblings.

What expenses can be covered?

The program is not limited to private‑school tuition. Scholarships may be applied to K‑12 costs incurred at public, charter, religious or private schools, and, where state law permits, to homeschooling and microschool arrangements. Covered expenses include tuition, fees, textbooks, tutoring programs, transportation, and certain educational services, though the precise definition of some categories (e.g., tutoring) is still being refined.

State participation and SGO requirements

Each state decides whether to join the program. Participating states must submit a list of qualifying SGOs to the U.S. Treasury. SGOs can operate in multiple states, but they must meet federal eligibility standards. Until an SGO is listed for a state, donors cannot claim the credit for that state.

Founder Dovi Geretz of eftccredit.com warns that the biggest current bottleneck is supply: “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.”

Implications for families of children with disabilities

Supporters argue the EFTC expands parental control over education choices, allowing families to use scholarship funds for public‑school expenses as well as private‑school tuition. Thomas Arnett, senior research fellow at the Clayton Christensen Institute, notes that most voucher programs force students out of public schools, whereas the EFTC does not.

Critics, however, raise concerns about oversight, equity and the impact on public schools. Education law professor Janet R. Decker of Indiana University warns that the credit could become “a national private school voucher program funded through tax breaks for the wealthy that threatens to dismantle our system of public schools.” She also points out that private schools are not bound by the Individuals with Disabilities Education Act, potentially reducing legal protections for children with disabilities.

Next steps

The Treasury expects final guidance on qualifying expenses by the end of 2026. Families should monitor whether their state elects to participate and watch for the establishment of SGOs in their area. While the credit promises a low eligibility bar, the ultimate amount of scholarship aid will depend on the number and generosity of donor contributions and the capacity of SGOs to administer the funds.

Overall, the Education Freedom Tax Credit represents a significant federal effort to broaden school‑choice options and give families more flexibility in financing education, while also sparking a robust debate over its long‑term effects on public‑school funding and equity.

Original reporting: KRDO (Colorado Springs metro) — read the source article.