The clock is ticking for states to get ready for the federal Education Freedom Tax Credit
The federal Education Freedom Tax Credit (EFTC) takes effect on January 1, 2027, and the potential funding source for families could put $26 billion into their hands. With less than three months to the start of the new year, there is growing concern that states might not be ready with their perfected lists of Scholarship Granting Organizations (SGOs) that need to be submitted to the IRS by February 15, 2027.
States that miss the deadline might be preventing other organizations in the state from qualifying as an SGO for 2027.
A new source of education funding
The EFTC creates a federal tax credit for taxpayers who contribute to approved nonprofit SGOs. Individual taxpayers can receive a dollar-for-dollar tax credit of up to $1,700, while married couples filing jointly can receive up to $3,400. SGOs, in turn, award scholarships that families can use for qualified educational expenses, potentially including tuition, tutoring, instructional materials, and other educational support services.
The program isn’t limited to families whose children attend private schools. Students who are eligible to attend public schools may benefit provided their family’s income does not exceed 300% of area median income. According to the Treasury Department, 96% of children in states that have opted in could qualify.
Before families can access these scholarships, states and SGOs must establish the infrastructure to administer them.
Opting in doesn’t mean being ready
A state may have opted in to the EFTC, but that doesn’t mean its program is ready and operational. For states to be EFTC-ready, there are several dependent steps, with states ultimately responsible for certifying SGOs before submitting their perfected lists to the IRS.
Existing SGOs may already have the organizational structure, tax-exempt status, and scholarship administration processes in place. However, they still need to submit documentation proving they meet federal EFTC requirements.
New SGOs, however, must establish governance, obtain their tax-exempt status, and develop scholarship administration procedures before seeking state approval.
LearningSpring is a school choice management platform that helps states, schools, families, SGOs, and providers run their EFTC programs. “The U.S. Treasury Department has stated that states face a significant paperwork burden in compiling and submitting their perfected SGO lists. This is only the tip of the paperwork iceberg,” said Cecilia Retelle Zywicki, co-founder and CEO of LearningSpring.
This paperwork bottleneck “is one reason why having a compliance infrastructure partner like LearningSpring is so essential,” she added.
The paperwork is only the beginning
As new SGOs apply, change status, or lose approval, states will need to maintain accurate records and ensure that participating organizations continue to meet program requirements. States also have responsibilities for taking reasonable steps to prevent fraud and abuse. With potentially multiple SGOs operating in a single state, preventing duplicate scholarship awards and maintaining accountability will require careful coordination.
This creates a challenge beyond meeting the initial deadline. States must establish programs that can operate safely and efficiently over time. Some may choose to develop their own administrative infrastructure. Others may work with third-party partners like LearningSpring that already have systems for SGO onboarding, compliance, oversight, and program management.
Helping families benefit means investing in operations now
With the potential for putting $26 billion into the hands of parents to choose the educational supports their child needs, the EFTC has enormous potential for students in public, private, or charter schools as well as for those who are homeschooled.
Outsourcing the administrative load is one option for helping states meet federal deadlines and make scholarships available to families at the start of the year. “With LearningSpring, states don’t need to create new infrastructure to participate in the federal Education Freedom Tax Credit (EFTC) program,” added Retelle Zywicki.
