The New Federal Scholarship Tax Credit: What Missouri Needs to Know

Starting in 2027, a brand-new federal tax credit could generate more scholarship dollars for Missouri students, and the IRS just released its first detailed rules for how it will work.

The credit was created by the federal tax law signed on July 4, 2025. On October 1, 2026, the IRS released proposed regulations explaining how families, schools, donors, and states may take part. Missouri has already filed its official advance election to participate in 2027, which means Missouri students can benefit. The next step is for the state to submit its list of approved scholarship-granting organizations (SGOs) by February 15, 2027.

One important note before we dig in: these are proposed rules, not final ones. The public can submit comments through December 1, 2026, and a public hearing is scheduled for December 15, 2026. Some details could still change. However, the IRS says SGOs, and states may rely on these proposed rules beginning January 1, 2027, while final regulations are pending.

Here is what parents, schools, and donors need to know right now.

For Parents

A new scholarship is coming for Missouri students. Beginning in 2027, families of K-12 students in public, private, and faith-based schools can apply for a new scholarship to help pay for education costs. The scholarships will be given out by nonprofit organizations called scholarship-granting Organizations, or SGOs.

Already using MOScholars? This will feel familiar. With the MOScholars K-12 scholarship program, scholarships are given out by organizations called Educational Assistance Organizations, or EAOs. Scholarship Granting Organizations (SGOs) work much the same way, and your current EAO may also become an SGO. Each SGO still has to be approved and placed on Missouri’s official list. 

SGOs will decide most of the details, so we know very little right now. Federal law sets a few outer limits, but each SGO gets to choose who it serves, how much each scholarship is worth, and what it will cover. There is no federal cap on the size of a scholarship. An SGO might focus on lower-income families, a certain grade range, or tutoring. Until Missouri’s SGOs are approved and announce their programs, nobody can tell you exactly what your family will be offered.

What we do know are the federal ground rules every SGO must follow:

• Income limit. Household income can be no more than 300 percent of the area median income (the typical household income where you live) for the prior year. Nationally, about 96 percent of families will meet income qualification. Individual SGOs may set a lower limit.
• Missouri residency. Students must live in Missouri to receive a scholarship, with exceptions for military families.
• Public school eligibility. Your child must be eligible to enroll in a public K-12 school. They do not need to be enrolled anywhere when you apply. Whether homeschool students can participate depends on how Missouri law defines a school and on IRS guidance still to come.
• Returning students first. SGOs must give priority to students who received a scholarship the year before, and then to their siblings.
• Simple income proof. Families can show pay stubs, tax returns, or W-2s. A current award letter for SNAP, TANF, WIC, Section 8, or SSI also works. Foster children qualify automatically.
• Tax-free. Scholarship dollars are not counted as taxable income for your family.
• Paid for you, not to you. Tuition and fees go directly to the school. Other expenses are paid to approved vendors, through an online platform similar to what MOScholars families use, or reimbursed with receipts.

The IRS has not yet released the full list of what expenses qualify. It has called that guidance a high priority.

For Schools

Students in many different types of schools can benefit. The program can cover qualified K-12 education expenses for eligible students attending schools recognized under Missouri law. That includes traditional public schools, charter public schools, private and faith-based schools. Depending on the student’s educational setting, scholarships could help pay for expenses such as tuition, tutoring or special-needs services. The IRS has said additional guidance is coming to clarify exactly which education expenses qualify.

A few things schools should prepare for:

• Direct payments. Tuition, fees, and similar school charges must be paid by the SGO directly to the school, never to the family.
• Returning extra funds. Schools must return any SGO payment that exceeds a student’s costs or was sent by mistake.
• More verification. SGOs are required to prevent duplicate scholarships for the same expense, so expect requests to confirm enrollment and charges.
• Tutoring and special-needs scholarships. Schools in lower-income neighborhoods, or schools where at least 80 percent of students live in one, can work with an SGO to select students for tutoring or special-needs services based on need. In those cases, families skip the income paperwork.
• Broad reach. Every SGO must serve at least 10 students who do not all attend the same school.

For Donors

Scholarships are only possible when people with a federal tax liability decide to participate in the program by donating to a qualifying scholarship organization in Missouri.

Unlike a typical charitable donation, tax-credit-supported donations, like the EFTC, are offset by a tax credit instead of a deduction. People can donate up to $1,700 and get every dollar back on their federal taxes. Again, this is a 100%, dollar-for-dollar tax credit, not a deduction.

• Gifts count starting in 2027. Donations made on or after January 1, 2027 to an approved SGO qualify. Before you give, confirm your SGO of choice appears on the IRS’s published list of approved SGOs. Missouri has until February 15, 2027 to submit its list.
• Each person can claim up to $1,700 a year; a married couple filing jointly can claim up to $3,400 if each spouse gives $1,700.
• You do not have to live in Missouri. Anyone in the United States can give to a Missouri SGO and claim the credit. Share this with friends and family in other states.
• Say it is for the tax credit. When you give, tell the SGO you want your gift treated as a qualified contribution. Cash, check, card, and payroll deduction all work. Cryptocurrency does not.
• Watch for your donor number. Your SGO will send you an acknowledgment with a unique donor number by January 31 of the following year. You will enter it on the new IRS Form 8525 when you file.

Donors may not have to wait until tax time to benefit from the credit. Because the tax credit reduces the federal taxes owed, the donor can update their W-4 with their employer to account for it. Less tax is withheld from each paycheck and the donor sends that same amount to an SGO. The end result is that money that would have gone to the IRS goes to Missouri students instead.

A few fine-print notes:

• The credit can only reduce taxes actually owed. Any unused credit can carry forward for up to five years.
• Donors can participate in both the federal program and MOScholars and claim both tax credits, although the same dollars generally cannot generate both credits.
• The portion of a gift that earns the federal credit cannot also be claimed as a charitable deduction.
• Because tax situations vary, donors should check with a tax professional before adjusting their withholding.

What Comes Next

Over the next few months, the IRS will take public comments, Missouri will submit its list of approved SGOs, and SGOs will announce who they serve and how much they award. CEAM will share updates as they happen so your family, school, or business is ready to act.