Treasury previews new $1,700 tax credit for scholarship donations

Treasury’s preview of the new scholarship donation credit is not a narrow education-policy update. For KPMG tax, exempt organizations and state and local teams, it is an early look at a compliance and planning regime that could start shaping client conversations now, before the proposed rules land by the end of September 2026.

The credit, enacted in Public Law 119-21 on July 4, 2025, will allow individual taxpayers to claim a nonrefundable federal credit of up to $1,700 for cash contributions to scholarship-granting organizations beginning January 1, 2027. Treasury said states, scholarship-granting organizations and taxpayers should be able to rely on the proposed regulations for tax year 2027, and the IRS said 27 states had already elected to participate as of late May 2026. That puts the issue squarely in the lane of KPMG professionals who advise education-access clients, private-school networks, nonprofit operators and employers that get pulled into giving programs or governance discussions.

The biggest near-term work will be around structure. Treasury previewed a safe harbor for the 90% spending rule, saying it generally will be measured against total receipts, but that organizations largely engaged in scholarship-granting may be able to use segregated accounts instead. Treasury also said an SGO may be treated as located in a state if it is authorized to do business there and follows general state charitable-organization rules, while multistate SGOs can operate across state lines only if they are located in each state and maintain separate segregated accounts for each state. For firms with nonprofit and state tax practices, that means entity setup, account segregation and state-by-state qualification could become the first round of client questions.

The preview also drew a line on who and what can qualify. Eligible schools would include public, private and religious K-12 schools as defined by state law, homeschools recognized as schools under state law and schools operated by federally recognized tribes. Treasury said the IRS plans to assign unique donor ID numbers instead of requiring SGOs to collect Social Security numbers, and it intends to build a user-friendly online portal for administration and reporting. That matters because the work will not stop at tax advice. It will run into payroll, employee-giving programs, controls, documentation and oversight, the kind of cross-functional issues that often end up on KPMG engagement plans.

The unanswered pieces are still the most important. The IRS requested comments in November 2025 on state certification, SGO requirements, reporting and recordkeeping, and Treasury’s June 12 roundtable with scholarship organizations, education stakeholders, technology providers and state officials showed just how many players will shape the final rules. For KPMG teams, the credit is about to become a planning issue first and a reporting issue next.