The debate over education funding in America just got a lot louder. As of late 2025, former President Donald Trump’s “One Big Beautiful Bill”—his flagship education and tax reform package—has officially introduced a new and controversial $1,700 federal tax credit for donations to private school scholarships. Supporters call it a victory for school choice. Critics say it’s a financial drain on already struggling public schools. Either way, this marks one of the most significant shifts in federal education policy in decades.
A New Kind of Tax Credit
The Internal Revenue Service (IRS) and the U.S. Treasury Department have now codified this new provision in Revenue Procedure 2026-6, published Friday, setting the groundwork for implementation beginning January 1, 2027.
Here’s how it works:
Starting in 2027, individuals who donate to certified Scholarship-Granting Organizations (SGOs)—nonprofits that provide private-school scholarships for low- and middle-income families—will be eligible to claim a non-refundable federal tax credit of up to $1,700. The SGOs must be approved by one or more states during that tax year, and contributions must be in cash.
This federal initiative mirrors existing state-level scholarship tax credit programs that have gained traction in places like Florida, Arizona, and Pennsylvania. But until now, such incentives have only existed at the state level. With this new law, Washington is officially stepping into the school-choice funding arena.
| Program Detail | Description |
|---|---|
| Credit amount | Up to $1,700 per taxpayer |
| Type of credit | Non-refundable (reduces tax owed, no refund beyond liability) |
| Eligible recipients | Low- and middle-income K-12 students via SGOs |
| Effective date | January 1, 2027 |
| Oversight | IRS and U.S. Treasury Department |
| Legal reference | Revenue Procedure 2026-6 |
A Deep Divide Over “School Choice”
While the Trump administration is touting the credit as “a win for families,” the policy has ignited fierce backlash from public education advocates. According to Education Week, this move would channel far more public money toward private institutions than the nation currently spends on charter or traditional public schools through competitive grants.
The numbers are eye-opening. Based on 2021 Census Bureau data, there are roughly 65.1 million public school students compared to 14.4 million in private schools. Yet analysts from Forbes estimate that the new tax credit program could end up investing five times more than the consolidated K-12 federal grants for public schools, and nearly twenty times more than the government’s largest charter school fund.
Critics, including several teachers’ unions and education nonprofits, warn that this could funnel resources away from public classrooms, especially in lower-income districts already battling budget freezes.
Public Funding Freeze Raises Questions
Adding to the tension, the Trump administration has reportedly frozen nearly $7 billion in federal education funds, labeling them “under review.” Officials say the review is routine and tied to an “efficiency audit,” but advocacy groups see it as a red flag that the administration might be reshuffling priorities to favor private and religious schools.
The U.S. Department of Education has not yet confirmed whether the suspended funds will be reallocated or reinstated before the 2026-27 school year.
What It Means for Families
For families who already rely on private or parochial education, this could be a substantial financial relief. A $1,700 tax credit may not cover full tuition, but it can meaningfully offset annual costs—especially when combined with state scholarships or education savings plans like the 529 Plan.
529 plans allow parents to save for education tax-free and use up to $10,000 per year per student for K-12 tuition and other eligible expenses, including books and supplies. Some states even match contributions or offer their own tax deductions on top of federal benefits.
| Funding Option | Who It Helps | How It Works |
|---|---|---|
| Federal $1,700 tax credit (2027) | Donors supporting SGOs | Offsets taxes owed for donations |
| State scholarship programs | Varies by state | Provides private-school scholarships |
| 529 Education Savings Plan | Parents or guardians | Tax-free growth, up to $10,000/year for K-12 use |
However, education experts are quick to caution that private schools aren’t always synonymous with better outcomes. A study in Educational Researcher found no long-term academic advantage for students who attended private schools once socioeconomic factors were controlled. The data suggests that the quality of instruction and family engagement matter far more than the label “public” or “private.”
The Policy Landscape Ahead
The rollout of this federal tax credit marks a defining moment in the school-choice debate. For conservatives, it’s a long-awaited expansion of parental control and competition in education. For opponents, it’s a federal endorsement of privatization that could erode the foundation of public schooling.
Several states are expected to participate immediately once the program opens in 2027. Others may hold off until they can assess its impact on local education budgets.
Political analysts also note that this measure could shape the 2026 midterm elections, with education policy once again becoming a rallying issue for both parties.
FAQs
When does the $1,700 federal tax credit start?
The program starts January 1, 2027, according to IRS Revenue Procedure 2026-6.
Who can claim this credit?
Any taxpayer donating to an approved Scholarship-Granting Organization that funds K-12 students from low- or middle-income families.
Is the credit refundable?
No. It’s non-refundable, meaning it reduces taxes owed but doesn’t produce a refund beyond your tax liability.
Will this affect public school funding?
Potentially. Critics argue it could divert funds from public education, though the administration maintains it’s privately funded via tax credits.
Can I still use a 529 plan for private education?
Yes. Parents can use up to $10,000 per student per year from 529 accounts for K-12 tuition and other eligible costs.
