Education Freedom Tax Credit in Texas: How It Works Alongside TEFA

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

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. Gifts count starting 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 Texas's list, or any covered state's list. You designate the gift as a qualified contribution. There's no donor income limit.

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 Texas public school.

TEFA vs. the Education Freedom Tax Credit

Texas now has two programs with "education freedom" in the name. They're funded differently and work differently.

Our TEFA guide covers the state program in full.

Texas's opt-in status

Texas is opted in and is on the IRS advance-election list updated September 14, 2026. Governor Greg Abbott announced Texas's intent to join on December 10, 2025, saying the federal program would "increase the opportunity for families to choose the educational setting that works best for their child."

Abbott's announcement didn't name the agency that will build Texas's SGO list, and no list has been published as of October 2026. Under Treasury's proposed rules, the 2027 list is due by February 15, 2027.

What it means for Texas donors

Texas has no personal income tax and no state scholarship tax credit. For donors, that means the federal credit is the whole tax benefit, and none of your gift is reduced by a state credit.

Worked example. A Houston couple owes $20,000 in federal tax for 2027. Each spouse gives $1,700 to a Texas SGO in January and designates it as a qualified contribution. They claim $3,400 on Form 8525. A gift from their family business, an S corporation, wouldn't count under the proposed rules, so they give personally.

Want your gift to help Texas students? Choose an SGO on Texas's list. If it's a multistate SGO, designate the gift for its Texas account, because SGOs must spend credit-eligible gifts only in the state that listed them.

What it means for Texas families

TEFA's first year was oversubscribed. The Comptroller reports more than 274,000 applications and over 100,000 awards for 2026-27, with priority to students with disabilities and lower-income households. Many middle-income families were left out. See our Texas scholarships guide.

SGO scholarships could help in three ways. They can reach families who missed TEFA. They can top up costs TEFA doesn't fully cover. And they can serve public school students, through academic tutoring, books, supplies or computer technology. Qualified expenses also include tuition and special needs services. Each SGO decides what it funds, and Treasury's guidance on homeschool costs is still coming.

Texas timeline

• January 1, 2027: credit-eligible giving begins.
• February 15, 2027: Texas's 2027 SGO list due to the IRS.
• 2027-28: TEFA's next window, with dates not yet announced as of October 2026.
• January 31, 2028: SGO acknowledgements for 2027 gifts.
• Spring 2028: claim on your 2027 return.

How to give and claim

1. Pick an SGO on Texas's list once it's out. ACE Scholarships lists Texas among the states it serves. Confirm your choice is on the IRS SGO list when you give.
2. Give cash on or after January 1, 2027, and designate it for Texas. 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 Texas's list is published. This page reflects Treasury's proposed rules as of October 13, 2026. It is not tax advice; ask your tax professional.