New Federal Tax Credit for Scholarship Contributions: What the One Big Beautiful Bill Means for Taxpayers Starting in 2027

The One, Big, Beautiful Bill (OBBB) continues to introduce meaningful changes to the U.S. tax landscape, particularly for individuals seeking smarter ways to reduce their tax liability while supporting education. One of the most impactful upcoming provisions is a new federal tax credit for individual contributions to Scholarship Granting Organizations (SGOs), beginning in 2027.

While this credit will not be available until 2027, the groundwork is being laid now. Treasury and the IRS recently released guidance allowing states to make an advance election to participate in the program, giving taxpayers and SGOs time to prepare.

At Velin & Associates, Inc., we see this as an important planning opportunity—especially for high-income earners, business owners, creators, and professionals who are already engaging in charitable giving but want to do so more tax-efficiently.

What Is the New Scholarship Contribution Tax Credit?

Beginning January 1, 2027, individual taxpayers may claim a nonrefundable federal tax credit of up to $1,700 per year for cash contributions made to qualifying Scholarship Granting Organizations.

SGOs are organizations that provide scholarships for elementary and secondary school students from low- and middle-income families. The key requirement is that the SGO must be approved by a participating state and included on that state’s official SGO list for the year.

This is a credit, not a deduction—which means it directly reduces federal tax owed dollar-for-dollar, rather than merely reducing taxable income.

Why State Participation Matters

This credit is not automatically available nationwide.

For a taxpayer’s contribution to qualify:

• The taxpayer’s state must elect to participate in the program
• The contribution must be made to an SGO listed by that state
• The contribution must be cash, not property or services
• The credit is capped at $1,700 per taxpayer per year

Treasury guidance now allows states to make an Advance Election to participate in the program for 2027, even before finalizing their SGO lists. This gives organizations time to prepare and gives taxpayers time to plan.

Why This Matters for Strategic Tax Planning

At Velin & Associates, we work with clients who are already generous—but not always strategic.

This new credit creates an opportunity to:

• Convert charitable intent into direct tax savings
• Coordinate federal credits with state-level benefits
• Integrate education-focused giving into long-term tax planning

Below are hypothetical scenarios based on the types of clients we commonly serve.

Example: High-Income Professional Supporting Education

A high-earning medical professional already donates annually to education-related charities. Under current law, those donations generally produce only an itemized deduction.

Beginning in 2027, if California elects to participate and the contribution is made to a qualifying SGO, the same donation could produce:

• A $1,700 federal tax credit
• Potential state-level benefits, depending on California’s implementation
• Continued charitable impact aligned with the client’s values

For CPA for Doctors, CPA for Medical Practice, and CPA for High Net Worth Individuals, this creates a more efficient way to give.

Example: Creator or Influencer with Volatile Income

A YouTuber or TikTok creator experiences fluctuating income from year to year. In high-income years, tax credits are often more valuable than deductions.

Under the new rules, a creator who makes a qualifying SGO contribution in 2027 could:

• Reduce federal tax liability directly by up to $1,700
• Combine this credit with other OBBB provisions affecting tips, overtime, or deductions
• Use charitable planning as a stabilizing tax strategy

This is particularly relevant for CPA for YouTubers, CPA for TikTokers, CPA for Creators, and CPA for Filmmakers.

Example: Online Business Owner Seeking Smarter Giving

A Shopify or Amazon business owner regularly supports community causes but has never coordinated charitable giving with tax planning.

With the new SGO credit:

• Contributions can be planned intentionally around tax exposure
• The federal credit can offset income generated by ecommerce sales
• Giving can be structured annually instead of reactively at year-end

For CPA for Shopify Store, CPA for Online Commerce, CPA for Amazon Business, and Amazon Business CPA, this creates a new planning lever beyond traditional deductions.

Important Limitations to Understand

While the credit is powerful, it comes with limitations:

• It is nonrefundable, so it cannot create a refund by itself
• The credit is capped at $1,700
• Only cash contributions qualify
• Contributions must be made to state-approved SGOs
• Not all states may elect to participate

This makes advance planning critical, especially for taxpayers who want to coordinate charitable giving, estimated taxes, and other credits.

How Velin & Associates, Inc. Helps Clients Prepare

Although the credit begins in 2027, planning should start well before then.

At Velin & Associates, Inc., we help clients:

• Monitor whether California (or another state) elects to participate
• Evaluate whether SGO contributions fit into their broader tax strategy
• Coordinate credits with income timing and other OBBB provisions
• Avoid missed opportunities or disallowed credits due to technical errors
• Integrate charitable planning into long-term tax optimization

This is especially valuable for business owners, creators, professionals, and high-income individuals whose tax situations are rarely straightforward.

Looking Ahead

The new SGO tax credit reflects a broader shift under the One, Big, Beautiful Bill toward targeted, behavior-driven tax incentives. For taxpayers who want to support education while managing their tax liability intelligently, this credit may become a valuable annual planning tool.

As states release additional guidance and SGO lists are finalized, taxpayers who plan early will be in the best position to benefit. For more information about our tax planning services, contact us today: visit our website.

Velin & Associates, Inc

8159 Santa Monica Blvd STE 198/200 West Hollywood, CA 90046
323-902-1000
dmitriy@losangelescpa.org

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