Treasury publishes its proposed rules

On October 1, 2026, Treasury and the IRS released the rules for the Education Freedom Tax Credit: 181 pages of proposed regulations and 61 pages of temporary regulations. Both appear in the Federal Register on October 2. They answer most of the questions this site has carried as open since June, including the biggest one for donors. (Source: Treasury release, October 1, 2026)

The proposed rules aren't final. Treasury is taking comments until December 1, 2026 and holds a public hearing on December 15. But Treasury says taxpayers, organizations and states can rely on them for donations made on or after January 1, 2027, as long as they follow them in full. The temporary rules on state elections and registration are binding now. (Source: Prop. Reg., applicability date)

For donors

Couples get $3,400. Treasury reads the statute's $1,700 limit per taxpayer as $1,700 per spouse. A married couple filing jointly can claim up to $3,400 on their return, as long as each spouse makes their own donation of up to $1,700. How that works (Source: Prop. Reg. §1.25F-2)

A state credit comes off first. If you claim a state credit on a donation, it's subtracted from the donation before the $1,700 cap applies, not after. A $2,500 donation with a $500 state credit still earns the full $1,700 federal credit. A state deduction doesn't reduce it at all. (Source: Prop. Reg. §1.25F-2(c))

Cash, designated, direct. Cash means currency, checks, money orders, card and bank payments and after-tax payroll deduction, in US dollars. Digital assets don't count. You tell the organization at the time that the donation is for the federal credit, and that designation can't be undone. A donation made through a partnership or S corporation doesn't qualify. (Source: Prop. Reg. §1.25F-1, §1.25F-2)

Form 8525 and your donor number. The IRS form is Form 8525, Federal Scholarship Tax Credit. On it you report the unique donor number from each organization you gave to. The organization must send you a written acknowledgment with that number, its EIN, your total for the year and any goods or services it gave you, by January 31 of the next year. It reports the same to the IRS by February 28. Leave the number off and the IRS presumes you made no donation, though you can rebut that with the acknowledgment. (Source: Prop. Reg. §1.25F-2(g), §1.25F-4(c))

You can trust the list. If an organization is on the IRS list when you donate, your credit stands even if it later loses its status, unless you knew it didn't qualify. (Source: Prop. Reg. §1.25F-2(b))

For families

Income means cash income. Treasury dropped the parts of HUD's definition that count the value of assets a family owns, which it estimates makes about 96% of children in participating states eligible. Organizations can check income from pay stubs, tax returns, IRS transcripts or W-2s, or from a letter showing the family receives SNAP, TANF, WIC, Section 8 or SSI. Foster children qualify without an income check. (Source: Prop. Reg. §1.25F-3(c)(6))

Scholarships follow where the student lives, not where the school is. A student in a participating state can use a scholarship at a school across the state line. Tuition is paid to the school. Other costs go to a verified vendor or are reimbursed against receipts, and organizations must make sure the same cost isn't paid twice. (Source: Prop. Reg. §1.25F-3(c)(5))

For schools and scholarship organizations

The 90% spending test is measured against all of an organization's receipts, and each year's money has to be spent by the end of the following year. A single-state organization whose activities are at least 85% scholarship granting can apply the operational rules to its federal-credit account alone. That lets an organization like CEN SGO run a state program and the federal one side by side. What the rules mean for schools (Source: Prop. Reg. §1.25F-3(c))

Disqualified persons, who can't receive a scholarship, are an organization's officers, directors and trustees, anyone who helps choose recipients, anyone who gives more than $5,000 in a year when that's more than 2% of the account's donations, and the families of all of them. Every organization needs an annual audit by an independent third party, or by a committee of independent people if its receipts are $500,000 or less. And every organization must register in a new IRS portal, which issues the format for donor numbers. (Source: Prop. Reg. §1.25F-3(d), §1.25F-4)

For states

States have a firm deadline. A state that filed its advance election by January 1, 2027 completes it by sending its list of organizations to the IRS by February 15, 2027. In later years the list is due by January 1. States must check that organizations meet the federal rules and may ask for applications and financial reports, but they can't make organizations operate more restrictively than the statute, for example by limiting which schools or expenses a scholarship can cover. The 2027 calendar (Source: T.D. 10057, §1.25F-5T)

What's still open

Form 8525 itself hasn't been published, and the IRS portal hasn't opened. The proposed rules don't address donor-advised funds, IRA distributions or the alternative minimum tax, so our advice on those stays the same: donate from your own account and ask your preparer. Final regulations will follow the comment period.

What CEN is doing

We're reading all 242 pages and updating every guide they touch. The donor pages now reflect the $3,400 figure for couples. The compliance page lists what the rules require of us. The key dates page has the new deadlines. We'll say what changed as we go.

Read the documents

The proposed regulations are REG-117199-25 and the temporary regulations are T.D. 10057, both on federalregister.gov. Treasury's release and fact sheet are on treasury.gov. All four are linked on our Sources page. Comments go to regulations.gov, docket REG-117199-25, by December 1, 2026.