Education Freedom Tax Credit: what North Carolina families and donors need to know

As of 9:25 a.m. ET, Tuesday, Oct. 20, 2026

North Carolina is signed up for the federal Education Freedom Tax Credit, which starts Jan. 1, 2027. It lets people who give to approved K-12 scholarship-granting organizations, or SGOs, cut their federal income tax dollar for dollar, up to a cap.

North Carolina's status

North Carolina opted in through House Bill 87, now Session Law 2026-6. Gov. Josh Stein vetoed it on Aug. 6, 2025. The House overrode him 73-46 on May 20, 2026, and the Senate 30-19 on June 3, according to the General Assembly's bill history.

The IRS lists North Carolina among 30 states that had made an "advance election" to take part in 2027, on a list dated as of Sept. 14, 2026. New York Gov. Kathy Hochul announced on Oct. 9 that her state would also take part, Chalkbeat reported.

In his Aug. 6, 2025, veto statement, Stein said, "Congress and the Administration should strengthen our public schools, not hollow them out." He added: "Once the federal government issues sound guidance, I intend to opt North Carolina in so we can invest in the public school students most in need of after school programs, tutoring, and other resources. Therefore, HB 87 is unnecessary, and I veto it."

After the override, Stein said in a June 3 statement: "I vetoed House Bill 87 because at the time we were awaiting sound guidance from the federal government before opting in. Despite not receiving that guidance yet, the General Assembly decided to opt the state into the program." He also said, "I see potential opportunities for public school students to benefit from this program," and, "We are working on a solution to make it easy for North Carolinians like me who want to direct their federally reimbursed donations to scholarship-granting organizations that directly benefit public school students, and I look forward to sharing more once the federal guidance has been provided."

Senate Leader Phil Berger said in a statement after the Senate vote that the program "gives parents another opportunity to obtain an education that best fits their child's needs," Carolina Journal reported.

How much donors can claim

The federal law caps the credit at $1,700 per taxpayer per year, according to the Treasury Department's proposed regulations, published Oct. 2. Under those proposed rules, married couples filing jointly could claim up to $3,400 combined, Treasury and the IRS said in Oct. 1 announcements from the IRS and Treasury. The joint-filer figure comes from proposed rules, not final ones.

Other rules for donors, according to Treasury and the IRS:

• The credit is nonrefundable and applies to cash contributions.
• A donation that earns the credit cannot also be deducted as a charitable gift.
• The federal credit is reduced by any state tax credit claimed for the same donation.
• Unused credit can be carried forward for up to five years.
• Donors may give to an approved SGO in any participating state, no matter where they live.

How scholarship groups qualify

Under the federal law, as summarized in the proposed regulations, an SGO must:

• be a 501(c)(3) public charity, not a private foundation;
• keep donations that qualify for the credit in separate accounts;
• provide scholarships to at least 10 students who do not all attend the same school;
• spend at least 90% of its income on scholarships for eligible students;
• fund only qualified K-12 education expenses;
• give priority to past scholarship recipients and their siblings;
• not earmark donations for a particular student;
• verify that each recipient's household income is no more than 300% of the area median gross income;
• not award scholarships to "disqualified persons."

The SGO must also appear on its state's list.

Eligible expenses can include private-school tuition, tutoring, special-needs services, books, supplies and computers, according to the IRS announcement. Under the proposed rules, participating states could not impose SGO requirements stricter than federal law, such as limits on the type of school a recipient attends.

In North Carolina, the law assigns the list to the State Education Assistance Authority, or NCSEAA. The agency, which runs the Opportunity Scholarship program, must:

• certify a list of qualifying SGOs located in the state, submit it to the U.S. Treasury and publish it online;
• set any needed rules by July 1, 2026, or within 120 days of the publication of federal regulations, whichever is later.

The law also says listed SGOs may fund home school expenses to the extent federal law allows.

The agency's SGO page, checked Tuesday, says it "is reviewing the recently published federal materials and will begin developing its guidance on the program in the upcoming weeks." The page does not list any approved organizations or describe an application process.

Key dates

The dates below come from the Treasury and IRS temporary regulations and the proposed rules:

• Dec. 1, 2026: The temporary regulations take effect. Comments on the proposed rules, and requests to speak at the public hearing, are due the same day.
• Dec. 15, 2026: Public hearing at 10 a.m. ET in Washington. It will be canceled if no speaker outlines arrive by Dec. 1.
• Jan. 1, 2027: Taxpayers may begin making qualifying donations. For 2027, states must submit their advance election to take part on or before this date.
• Feb. 15, 2027: For 2027 only, states that made an advance election have until this date to submit their lists of SGOs.

The debate

At an Oct. 13 event in Miami Gardens, Fla., U.S. Education Secretary Linda McMahon said, "This is added money into the pot of education, not taking away from anything," WLRN reported. She said there is no national estimate of how the money would split between private and public schools. American Federation of Teachers President Randi Weingarten said in a statement that the measure would leave public school parents "hunting for stray pennies on the floor," WLRN reported. It also reported that congressional Democrats are sponsoring measures to repeal the credit.