Educational Freedom Tax Credit

The Education Freedom Tax Credit (EFTC), created under Section 25F of the Internal Revenue Code, is a new federal tax credit designed to expand scholarship opportunities for K–12 students. Utah has elected to participate, and the program is scheduled to begin January 1, 2027.

The program creates an opportunity for private schools, families, donors, and scholarship organizations to work together to make private education more affordable.

Important: This page is an educational overview based on federal statute and Treasury guidance available as of August 2026. It is not legal, tax, or financial advice. Final Treasury regulations and Utah's implementation procedures may change some details.

How the EFTC Works

The EFTC is a tax-credit program—not a federal voucher or government grant to private schools. Private donors contribute to qualifying SGOs, and those organizations distribute scholarship funds to eligible students.

The basic process

A taxpayer makes a qualifying contribution to a certified SGO.
The SGO reports the contribution and provides the taxpayer with the information needed to claim the credit.
The SGO awards scholarships to eligible students, subject to federal requirements.
Families use scholarship funds for qualified K–12 education expenses.
The taxpayer claims the federal tax credit on their federal income tax return.

The credit is dollar-for-dollar, up to the annual $1,700 limit. For example, a taxpayer who makes a qualifying $1,700 contribution and qualifies for the full credit could receive a $1,700 federal income tax credit.

Who Can Benefit?

Treasury's June 2026 preview indicated that the definition of qualifying schools is expected to include public, private, and religious K–12 schools recognized under applicable state law.

The federal income eligibility threshold is generally 300% of the area's median income, subject to the final regulations.

For private-school families, scholarships may help offset qualified expenses such as tuition and other eligible educational costs.

For public-school, charter-school, or potentially home-school families, the program could potentially support other qualified education expenses, such as:

Tutoring and academic support
Special-needs services
Books and curriculum materials
School supplies
Technology and computer equipment
Testing and examination fees
Transportation

The final scope of qualifying expenses remains subject to Treasury regulations.

Why This Matters for Utah Private Schools

The EFTC does not send federal money directly to schools. Instead, it creates a new incentive for individuals to make charitable contributions that can ultimately provide scholarships to students.

This could create several opportunities for private schools:

Greater affordability for families

Scholarships can help reduce the financial barrier that prevents some families from choosing private education.

A new way for donors to give

Parents, grandparents, alumni, parish members, and other supporters may have an additional tax-advantaged way to support educational scholarships.

Additional financial-aid resources

EFTC-funded scholarships can potentially supplement the financial aid already provided directly by a school.

Expanded access to private education

By reducing the cost barrier for eligible families, scholarship funding could allow more students to consider or remain in private schools.

The Opportunity for Donors

A qualifying donor can generally make a contribution in two ways:

One-time contribution: A donor can make a qualifying contribution of up to $1,700 per year to an SGO.
Recurring contributions: Some SGOs or participating vendors may offer recurring monthly contributions, including arrangements through payroll deduction. These arrangements are administrative conveniences rather than a separate federal program. The specific contribution and payroll procedures will depend on the SGO, employer, and applicable regulations.

Can donors support a particular school?

Federal law prohibits an SGO from earmarking a contribution for a specific student. That does not necessarily prevent an SGO serving multiple schools from allowing donors to express a preference for a particular school or school community. The SGO must retain independent control over individual scholarship awards. Schools should confirm the specific process with their SGO partner once Utah's certification process is established.

Key Dates

July 2025
Section 25F was enacted as part of the One Big Beautiful Bill Act.

January 2026
Utah was confirmed as a participating state.

June 9, 2026
Treasury previewed key elements of forthcoming Section 25F guidance.

By the end of September 2026
Treasury is expected to issue proposed regulations.

January 1, 2027
The EFTC program launches, and Utah's certified SGO list is due to the Treasury.

Questions Still Being Resolved

Several important details remain subject to final federal and state guidance, including:

How Treasury will define "income of the organization" for the 90% scholarship-spending requirement.
How SGO audits and fraud-prevention requirements will operate.
The precise oversight responsibilities of participating states.
Which Utah agency will certify SGOs.
The final definition of qualified education expenses.
How school-level donor preferences will be handled.
How the federal program will interact with Utah's existing scholarship programs.

Schools should avoid treating these unresolved issues as final until Treasury and Utah issue additional guidance.

What Private Schools Should Do Now

Schools can begin preparing even while final regulations and Utah procedures are being developed.

1. Identify potential SGO partners

Look for established organizations or school networks that may seek Utah certification.

2. Build relationships early

If your school belongs to a diocese, association, network, or other organization serving multiple schools, consider whether a shared SGO strategy could broaden donor participation.

3. Prepare your donor community

Begin educating parents, grandparents, alumni, and other supporters about the opportunity without presenting the tax credit as the primary reason to give.

4. Lead with your mission

The strongest donor message should focus on students, families, and your school's mission. The tax credit is a tool that can make charitable giving easier—not the purpose of the gift.

5. Prepare families for income verification

SGOs will need to verify household income. Families who may qualify should be prepared to provide appropriate documentation, such as tax returns or other income records.

6. Develop a scholarship strategy

Consider how additional scholarship resources could complement your school's existing financial-aid program.

7. Monitor Utah's certification process

The identity of approved Utah SGOs will be critical. Schools should monitor state announcements and communicate with potential SGO partners about their plans for certification.

8. Watch for Treasury regulations

Treasury's proposed regulations are expected by the end of September 2026 and should provide additional clarity about several important program requirements.

Bottom Line for Utah Private Schools

The Education Freedom Tax Credit represents a new potential source of scholarship funding for Utah families.

The opportunity is indirect: the federal government provides the tax incentive, donors provide the contributions, SGOs administer the scholarship funds, and eligible students and families receive the scholarships.

For private schools, the most important steps are to:

Understand the program.
Identify credible SGO partners.
Prepare your families and donors.
Build a broad community of support.
Monitor Utah's certification process.
Stay current as federal regulations are finalized.

Schools that prepare early will be better positioned to help families take advantage of the program when the EFTC launches in January 2027.