The federal scholarship tax credit's draft rules are out: what Dallas families should know before 2027

If your child is still on the TEFA waitlist, or your family landed in one of the program's lower-priority tiers, you have probably heard about a second source arriving in January: a federal tax credit that pays for privately funded scholarships. Until this month, most of what parents in Dallas, Collin and Denton counties heard about it was guesswork. On October 1, 2026, the U.S. Treasury and the IRS released proposed and temporary regulations for the credit, which the tax code calls Section 25F. Here is what the draft rules settle, what they leave open, and what a North Texas family can sensibly do between now and spring.

How the credit works

The money doesn't flow from the government to families. It flows from donors. A taxpayer gives cash to a scholarship granting organization, or SGO, and claims a federal credit of up to $1,700, or up to $3,400 for a married couple filing jointly. The credit is nonrefundable, and unused amounts carry forward for up to five years. The SGO then awards scholarships to eligible students. Only gifts made on or after January 1, 2027 count, and only when the donor designates the gift as a qualified contribution at the time it is made. Treasury says 30 states have opted in so far.

Who counts as an eligible student

Under the draft rules, a student must be eligible to enroll in a public elementary or secondary school and live in a household whose prior-year income is at or below 300% of area median gross income. The area figure follows the method used by the federal Section 8 housing program, adjusted for family size. Treasury hasn't published a table of those amounts for this program, so we won't guess at a dollar line for Dallas or Collin County. Its own estimate is that about 96% of children in participating states would qualify.

SGOs may check income with pay stubs, tax returns or IRS transcripts. An award letter for SNAP, TANF, WIC, Section 8 or SSI also works, and foster children are treated as meeting the test. If your household receives one of those benefits, keep the current letter somewhere you can find it.

Two more rules matter for planning. Scholarships must go to students who live in the state where the SGO is listed, and residence follows state law rather than where the child attends school. And SGOs must give priority to students who received a scholarship the year before, and to their siblings, with some room to put tutoring or special-needs requests first. That second rule rewards families who apply in the first year.

What the rules leave open

The biggest open question for parents is what a scholarship may pay for. The law points to "qualified elementary or secondary education expenses" as defined in Section 530 of the tax code, and Treasury says it will clarify that term in separate guidance. When Gov. Greg Abbott announced the state's plans, his office described scholarships covering tuition and other costs such as tutoring, transportation and special-needs services, but the federal definition will control.

Also unsettled: how a scholarship sits next to a TEFA account. The draft rules don't mention state education savings accounts. Until that is clarified, plan to report any scholarship to your school's aid office alongside your TEFA award, and don't count on using both for the same tuition dollars.

Where Texas stands

Abbott said on December 10, 2025 that Texas intends to opt in. Under the temporary regulations, a state has to make its 2027 election by January 1, 2027 and submit its list of SGOs by February 15, 2027. If a state misses the list deadline, no organization there qualifies for 2027. Texas had not published a list as of this month. A gift to an organization that isn't on the state's list doesn't earn the credit, so the list is the date to watch.

The organizations themselves face real requirements. An SGO must spend at least 90% of its income on scholarships, keep a separate account for each state it serves, refuse gifts earmarked for a particular child, and complete an annual financial and program audit. Watch which groups apply; the first Texas list may be short.

What a Dallas family can do now

Keep your TEFA plan on track. TEFA is still the larger source. For 2026-27 it pays $10,474 at a participating private school, more with an IEP, and the final 50% installment is scheduled for February 1, 2027. Nothing about the federal credit changes that. Our TEFA calculator shows your child's amount.
Find your gap. A scholarship is most useful where TEFA stops: high school tuition above the award, a sibling without an account, or a child still waiting for one. Our page on what's left after TEFA walks through that math.
Ask your school. Ask the admissions or business office whether it expects to work with an SGO and how it will handle aid files that combine sources. Catholic families can also check the Diocese of Dallas tuition assistance calendar.
Gather income records. For scholarships awarded in 2027, the prior-year income an SGO checks will likely be your 2026 income, so keep this year's tax return and pay stubs together.
Be wary of fees. Scholarships come from donated funds. Check any organization against the state's list once it is public.

If you're also a donor

Many Dallas parents are also the people being asked to give. A few points from the draft rules: donors may give to an SGO in any participating state, wherever they live. Each spouse must contribute at least $1,700 for a couple to claim the full $3,400. Gifts made through a partnership or S corporation don't qualify. A donor can't take both the credit and a charitable deduction for the same dollars, though amounts above the credit may still be deductible. The SGO gives each donor a number to report on IRS Form 8525 with the 1040. Talk with a tax professional before giving; we aren't one.

Dates to put on the calendar

December 1, 2026: public comments on the proposed rules are due.
December 15, 2026: IRS public hearing on the rules.
January 1, 2027: the credit applies to gifts from this date, and states' 2027 elections are due.
February 1, 2027: final TEFA installment for 2026-27 private school students.
February 15, 2027: deadline for Texas to send the IRS its SGO list.

We'll add the organizations serving North Texas to our federal scholarship tax credit page once the state's list is out. If you'd like help lining up TEFA, school aid and this credit for your child, start the funding check.

Sources

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