New Program Could Make Private School Tuition More Affordable

Written by David Neuman, JD LMC Tax & Legal Manager

New York to Participate in Federal Scholarship Tax Credit Program: What Donors Need to Know

New York taxpayers may soon have a new opportunity to support educational scholarships while reducing their federal income tax liability. On October 9, 2026, Governor Kathy Hochul announced that New York would participate in the new Federal Scholarship Tax Credit Program. Enacted under the One Big Beautiful Bill Act, the program is scheduled to begin January 1, 2027.

How the Credit Works

Beginning in 2027, eligible individuals may claim a federal income tax credit of up to $1,700 for qualifying cash contributions to approved Scholarship Granting Organizations (SGOs). Married couples filing jointly may potentially claim up to $3,400.

Unlike a charitable deduction, which reduces taxable income, a tax credit directly reduces federal income tax liability. The credit is nonrefundable, meaning it generally cannot reduce a taxpayer’s federal income tax liability below zero.

SGOs are qualifying tax-exempt charitable organizations that collect contributions and provide scholarships to eligible elementary and secondary school students. Scholarships may cover qualifying expenses such as tuition, books, supplies, tutoring, and certain services for students with special needs. Eligible students may attend public, private, religious, independent, or charter schools, subject to program requirements.

What New York Taxpayers Should Consider

The program may offer a valuable opportunity for donors who want to support educational scholarships while receiving a federal tax benefit. However, not every school or educational charity will qualify. Contributions must satisfy federal requirements and be made to an approved SGO in a participating state.

The credit is scheduled to apply to qualifying contributions made on or after January 1, 2027. Donations made during 2026 will not qualify for this credit. Donors should retain contribution acknowledgments and consult their tax advisors regarding how the credit interacts with other charitable tax benefits.

Importantly, the federal tax credit is not limited to New York residents. Taxpayers residing in other states, including New Jersey, may also be eligible to claim the credit for qualifying contributions to an approved SGO located in New York, provided New York completes the required federal participation process and the organization is included on the applicable approved SGO list. A donor’s state of residence does not, by itself, determine eligibility for this federal credit. To date, New Jersey has not opted into the program.

What Should Donors Do Now?

Before making a contribution, taxpayers should:

• Verify the recipient: Confirm that the organization is an approved SGO for the applicable year. Federal tax-exempt status alone is not sufficient.
• Confirm eligibility: Review the contribution requirements, timing rules, and taxpayer eligibility criteria.
• Maintain documentation: Keep receipts and written acknowledgments supporting qualifying contributions.
• Coordinate with a tax advisor: Consider the credit alongside existing charitable giving and the taxpayer’s overall tax situation.

SGO Eligibility

Schools and educational organizations interested in participating should understand that being a school or a tax-exempt organization does not automatically qualify them as an SGO. Organizations must satisfy the federal eligibility requirements, including the requirement to award scholarships to at least 10 students who do not all attend the same school. Accordingly, an SGO generally cannot limit its scholarship program exclusively to students attending one school.

Additional requirements include spending at least 90% of income on eligible scholarships, verifying student eligibility, maintaining appropriate records and segregated accounts for qualifying contributions, and complying with applicable reporting requirements. Organizations must also satisfy the approval requirements applicable to the participating state.

Schools should evaluate whether they can meet these requirements independently or whether partnering with an existing approved SGO would be a more practical approach.

LMC will continue to monitor federal guidance and New York’s implementation of the program and share updates as additional details become available.