The Federal Scholarship Tax Credit enacted in the One Big Beautiful Bill Act may drive roughly $26 billion annually in contributions by 2030 if 10% of qualified taxpayers participate, according to Treasury Department estimates released October 2, 2026. The Bipartisan Policy Center issue brief analyzes new temporary and proposed regulations governing the credit, which lets taxpayers redirect up to $1,700 of their federal tax liability per person to scholarship granting organizations serving K-12 students. The program takes effect January 1, 2027, but final guidance on allowable expenses remains pending.
Forecasts for the credit's annual cost vary dramatically based on assumed donor participation rates. The Joint Committee on Taxation's official score projects $0.5 billion per year in fiscal 2027, rising to an average of $3.2 billion annually over the first eight years. The Federal Scholarship Tax Credit Coalition estimates $3.0 billion per year in 2027 with less than 2% of eligible filers contributing, while the Urban Institute predicts $2.7 billion to $6.1 billion annually at 2-3% participation after an initial ramp-up period. Treasury's projection of $26 billion by 2030 assumes roughly 11 million taxpayers will contribute in states that had opted in as of August 2026. As of October 2026, 31 states have elected to participate—30 on the official IRS list plus New York. The credit applies to students whose household income sits at or below 300% of area median income, which the report says covers 96% of students in participating states. Scholarship granting organizations must spend at least 90% of credit-eligible income on scholarships and serve at least 10 students who don't all attend one school.
The report outlines several safe harbors that reduce the burden of proving student eligibility. Up to 36% of all students—roughly 10 million children ages 5-17 in about 6 million households in participating states—could qualify through categorical eligibility if their household receives SNAP, TANF, WIC, Section 8 housing assistance, or Supplemental Security Income. Nearly 350,000 school-age children in foster care would be treated as meeting the income limit without verification. A third safe harbor covers students selected by their school for tutoring or special needs services if the school is in a qualified census tract or certifies that at least 80% of its students live in one, though this option adds requirements for third-party diagnosis and quality audits not found in the statute. The temporary regulations, binding for 2027, prohibit states from imposing requirements more restrictive than federal law, such as limiting the types of schools or expenses scholarships can fund.
Five factors will shape the program's reach, according to the Bipartisan Policy Center. State participation and engagement matter beyond simply opting in—states can maximize access by helping establish statewide scholarship organizations, facilitating payroll deductions for eligible employees, and publicizing the credit to donors and families. Regulatory certainty and timing pose challenges, since Treasury hasn't yet defined qualified expenses or what counts as a "school," even with the credit launching January 1, 2027, and state organization lists due February 15, 2027. The number of donors directly determines available scholarship funds, since organizations can't distribute what they don't receive. Organization capacity and design choices—whether to fund tuition or public school services, which vendor providers to work with, whether to narrow eligibility to students most in need—will determine which students benefit. Supply of providers and seats limits what scholarships can accomplish, since students need access to schools with available capacity or high-quality tutoring programs that scholarships can meaningfully cover.
The report concludes that states, districts, and the federal government need to support information dissemination to eligible donors and families so more students can benefit from the program. Without final guidance clearing up misconceptions—such as the idea that public schools must charge fees for services to be covered by scholarships—implementation may be complicated and access limited. The authors note that until states and scholarship organizations have a complete picture of allowable costs, the full impact of the credit will be difficult to know. The success of the program hinges on donor participation rates that remain highly uncertain, with projections spanning from half a billion to $26 billion annually depending on how many taxpayers choose to redirect their tax liability.