Across the United States, taxpayers are always looking for ways to reduce their tax burden. With the start of a new school year, it’s a good time to explore how contributions to Qualified Scholarship Grant Organizations (SGOs) can help lower federal tax liability starting after December 31, 2026.

The Scholarship Grant Organization Credit

The recently enacted One Big Beautiful Bill Act (OBBBA) introduces a new federal tax credit for individuals who contribute to qualified SGOs. This credit allows taxpayers to reduce their federal tax bill by:

• Up to $1,700 for individuals filing singly
• Up to $3,400 for those married filing jointly

What’s more, any unused portion of the credit can be carried forward for up to five years, providing flexibility in how and when it’s used to offset tax liability.

However, there are three key limitations to keep in mind:

State Credit Offset

If a taxpayer claims an SGO credit on their state tax return, the federal credit will be reduced by the amount of the state credit received.

No Double Benefit with Charitable Deductions

Contributions used to claim an SGO credit cannot also be claimed as charitable deductions. While SGOs are typically non-profit organizations eligible for charitable contributions, the law prevents taxpayers from receiving both a tax credit and a deduction for the same donation. If a contribution doesn’t qualify for the credit, however, it may still be eligible as a charitable deduction under itemized deductions.

National Credit Cap

There is a $10 billion annual cap on the total SGO credits nationwide. Once this cap is reached, any additional contributions will not qualify for the federal credit but may still be eligible for a state-level credit, depending on your state’s tax rules.

What is a Qualified Scholarship Grant Organization?

A Qualified Scholarship Grant Organization is a non-profit (typically a 501(c)(3)) that provides K–12 private school scholarships to students. To qualify for the federal credit under the OBBBA, the SGO must:

• Be a non-profit organization
• Operate exclusively within a single state (must be the one in which the contribution was received)

This state-specific requirement is crucial. If an SGO uses contributions across multiple states, donations to that organization will not qualify for the federal tax credit (though they may still count as a charitable contribution for itemized deduction purposes).

Key Takeaways

• Starting January 1, 2027, taxpayers can begin claiming the federal SGO credit for contributions to qualified scholarship organizations.
• Know your state laws; some states also offer SGO credits, but claiming one may reduce your federal credit.
• Contributions cannot be claimed both as a credit and a charitable deduction; taxpayers must choose.
• There is a $10 billion national cap on the federal SGO credit, so early contributions may have a better chance of qualifying.
• Always verify that an organization qualifies as an SGO under the OBBBA before contributing.
• Consulting a tax professional can help maximize benefits across both federal and state tax systems.

Contact Us Today

If you have questions about how the new SGO credit applies to your situation or how to coordinate it with state tax benefits, call us at 203-489-0612 to discuss how this opportunity fits into your overall tax plan.

Written by: Tyler Goncalves