Education Freedom Tax Credit in Kentucky: HB 1, Donors and Families

What is the Education Freedom Tax Credit and how can you qualify in Kentucky?

The Education Freedom Tax Credit is the federal scholarship tax credit in Section 25F of the tax code. You give cash to a scholarship granting organization (SGO), and your federal income tax drops by the same amount, up to $1,700 a year. It starts with gifts made on January 1, 2027.

Donors qualify if they are U.S. citizens or residents who owe federal income tax and give cash to an SGO on Kentucky's list, or any covered state's list. You designate the gift as a qualified contribution when you give. No donor income limit applies, and you don't need to live in Kentucky.

Families qualify for the scholarships if household income is at or below 300% of area median gross income and the child is eligible to enroll in a Kentucky public school.

Kentucky's opt-in status

Kentucky is opted in, after its legislature overrode a veto, and is on the IRS advance-election list updated September 14, 2026.

Kentucky did it differently from most states. Instead of leaving the choice to the governor, HB 1 says the General Assembly itself makes the election and that Kentucky will take part "in each calendar year." Governor Andy Beshear vetoed the bill on March 13, 2026. The House and Senate overrode him, and the law took effect March 17, 2026 (2026 Acts Chapter 4).

HB 1 puts the Secretary of State in charge. That office reports Kentucky's election, builds and submits the SGO list, and posts federal guidance on its website. It can also write regulations, and it must cover its costs with a fee charged to SGOs or with private gifts. The law says the list goes to the Treasury by January 1 each year. For 2027, the federal deadline under Treasury's proposed rules is February 15, 2027.

What it means for Kentucky donors

Kentucky has an income tax but no state scholarship tax credit. The Education Opportunity Account credit was struck down by the Kentucky Supreme Court in 2022. So there's nothing to stack and nothing to subtract: your full gift up to $1,700 counts toward the federal credit.

Worked example. A Lexington retiree owes $1,000 in federal tax for 2027 and gives $1,700 to a Kentucky SGO. She uses $1,000 of credit in 2027. The other $700 carries forward and can be used in any of the next five years.

What it means for Kentucky families

Kentucky families have had no state voucher, ESA or tax-credit scholarship since the 2022 ruling, and voters rejected Amendment 2 in 2024. Our Kentucky scholarships guide covers today's options.

Federal-credit scholarships are private money, and they reach further than private school tuition. Qualified expenses include academic tutoring, special needs services, books, supplies and computer technology. That means public school students can benefit too. SGOs must give priority to returning students and their siblings. Treasury's guidance on homeschool costs is still coming, and each SGO decides what it funds.

Kentucky timeline

• January 1, 2027: credit-eligible giving begins; HB 1's annual list date.
• February 15, 2027: federal deadline for Kentucky's 2027 SGO list.
• January 31, 2028: SGO acknowledgements for 2027 gifts.
• Spring 2028: claim on your 2027 return.

How to give and claim

1. Wait for the Secretary of State's SGO list, then confirm your SGO is on the IRS SGO list. Kentucky organizations will appear in our SGO directory as they join.
2. Give cash on or after January 1, 2027, and designate it for Kentucky. Spouses each give separately.
3. Keep the acknowledgement with your donor number.
4. File Form 8525. See how to claim the federal scholarship tax credit, and use our checklist to donate to a scholarship fund.

Edulist doesn't take donations. You give directly to the SGO. You can pledge on Edulist and we'll email you when Kentucky's list is published. This page reflects HB 1 and Treasury's proposed rules as of October 13, 2026. It is not tax advice; ask your tax professional.