A new $1,700 tax credit lets you reroute money from the IRS to scholarships — but 23 states are sitting it out

A new $1,700 tax credit lets you reroute money from the IRS to scholarships — but 23 states are sitting it out shutterstock.com / PeopleImages Godwin Oluponmile Sun, June 14, 2026 at 12:45 AM GMT+7 6 min read You don’t usually get to choose where your federal taxes go once they leave your paycheck. A new credit changes that for up to $1,700 of your bill. Starting with the 2027 tax year, you can route that money to a private scholarship fund instead of the U.S. Treasury and claim back every dollar of it — if the right state has agreed to let you. So far, 23 of them haven’t. Robert Kiyosaki says this 1 asset will surge 400% in a year and begs investors not to miss this ‘explosion’ The ultra-rich use these 5 real estate strategies to build wealth while they sleep — you can start with just $100 Millionaires under 43 are reshaping investing — just 25% of their portfolios are in stocks. Here’s where their money is going Nearly half the country is sitting this one out. The Internal Revenue Service (1) (IRS) reported this month that 27 states have signed on to the Federal Scholarship Tax Credit (FSTC), created under the One Big Beautiful Bill Act — which means 23 states haven’t yet joined. The states that joined are mostly Republican: Texas, Florida, Georgia, the Dakotas. The holdouts tend to be Democratic. IRS Chief Executive Officer Frank J. Bisignano said the agency is “hopeful that additional states will decide to participate.” Why some states signed on while others stalled changes how much the credit is worth to you. The credit is dollar for dollar (2). Donate $1,700 in cash to a qualified scholarship-granting organization, and your federal tax bill drops by the full $1,700 on what you owe — not a trim to the income you’re taxed on. That makes it far more valuable than a deduction. It reimburses itself, so don’t mistake it for found money. You’re redirecting up to $1,700 you’d owe anyway; the appeal is getting to send a portion of your federal taxes to a cause you choose instead of the general fund. There are limits to it though. The credit is (3)nonrefundable (3). It can erase what you owe but won’t pay out beyond it. Though if you don’t use it all this year, you can carry it forward for up to five years (4). You can’t claim both the $1,700 credit and a charitable donation deduction for the same gift — you have to pick one. And it’s for individuals only, so a company that writes the check can’t use it. The scholarships go to students whose family income is below 300% of their area median income (2). They can cover private school tuition, tutoring, special needs services, supplies or transportation for public and private school students alike. The credit is federal, but states have to opt in before their scholarship organizations can accept the money. That call falls to the governor or another official the state designates. The objections are substantive. Opponents say the program steers support toward private schools while public school budgets are squeezed (5). Zahava Stadler, project director of the Education Funding Equity Initiative at New America, warned that states opting in early are “getting ahead of the law (5),” signing up before they know their students’ civil rights will be protected. In April, Democratic Senators Mark Kelly of Arizona and Mazie Hirono of Hawaii introduced a bill to repeal the credit outright (6). But a joint fact sheet (7) from the U.S. Department of the Treasury and the U.S. Department of Education says the credit “does not divert money from local or state taxes, which make up the large majority of school funding.” Most Republican governors signed on fast. In Kansas, Kentucky and now North Carolina, Republican-led legislatures voted to opt in over their Democratic governors’ objections. North Carolina’s case is different, though — Governor Josh Stein didn’t oppose the credit (8). He said he meant to opt the state in himself once the Treasury issued “sound guidance,” but the General Assembly overrode his veto (9) on June 3, nearly 10 months later, before that guidance arrived. Other Democractic governors have outright said they won’t opt in (10), including Oregon’s Tina Kotek, New Mexico’s Michelle Lujan Grisham and Wisconsin’s Tony Evers. Others are waiting on the IRS’s final rules, which aren’t written yet. But the split isn’t a clean party line. Colorado Governor Jared Polis was the first Democrat to opt in voluntarily, and said the state shouldn’t leave money on the table. If other states pass on it, he added, Colorado should “go after their donors (11).” New York Governor Kathy Hochul has also said she intends to join (11). Read More: About 1 in 5 Americans over 50 has zero retirement savings — here s the catch-up plan you can actually use Living in one of the 23 holdout states doesn’t lock you out of the credit, but it changes where your money goes. Any U.S. taxpayer can still claim the $1,700 by giving to a scholarship organization in a participating s

A new $1,700 tax credit lets you reroute money from the IRS to scholarships — but 23 states are sitting it out

Key takeaways

More in business