WEALTH WITH INTENTION
What Colorado Families and Donors Should Know
Education often sits at the intersection of a family’s values, financial priorities, and hopes for the next generation. A new federal tax credit will soon create another way to support educational opportunity. For Colorado residents, understanding who receives the tax benefit and how scholarships are awarded will be essential.
Beginning January 1, 2027, the Federal Scholarship Tax Credit, also called the Education Freedom Tax Credit, will support cash contributions to eligible scholarship granting organizations. The tax benefit goes to the donor. Paying your own child’s tuition does not qualify for this credit. [1, 2]
The Federal Side
Eligible individuals can receive a federal income tax credit of up to $1,700 annually for qualifying cash contributions. The October 2026 proposed regulations provide for up to $3,400 on a joint return when each spouse makes qualifying contributions. Donors may support eligible organizations in participating states regardless of where the donors live. [2]
A credit reduces tax directly. For example, assume an individual contributes $1,700, qualifies for the full credit, has sufficient federal income tax liability, and receives no state credit for the gift. The contribution reduces federal income tax by $1,700. The donor must still fund the gift before receiving the tax benefit. [1, 2]
The credit is nonrefundable. It cannot, by itself, reduce federal income tax below zero, although it may increase a refund of taxes already paid. Unused credit attributable to insufficient tax liability may carry forward for up to five years. The same contribution cannot also receive a federal charitable deduction for the amount credited. A state tax credit for the qualifying contribution reduces the federal credit. [1, 3]
Cash is required. A gift of appreciated securities does not qualify for this credit. Donors also do not need to itemize deductions, and Section 25F does not impose an income phaseout on donors. [1]
Eligibility at a Glance
The donor claims the tax credit. The student receives scholarship assistance. These are separate eligibility tests. [1, 2]
| Who | Eligibility and conditions | Potential benefit |
| Individual donors | U.S. citizens or residents making qualifying cash gifts to an eligible, state listed SGO beginning in 2027. Donors may live in any state. | Federal credit up to $1,700 annually, subject to available tax liability. |
| Married couples filing jointly | Each spouse makes qualifying contributions. Combined treatment is addressed in the October 2026 proposed regulations. | Up to $3,400 on a joint return under proposed guidance. |
| Donors with higher incomes | Section 25F has no donor income phaseout. Standard deduction filers can also qualify. | Same credit limits. Income does not increase the maximum. |
| Donors with limited federal tax liability | Qualifying gift requirements still apply. Current use depends on federal tax liability after applicable other credits. | Unused eligible credit may carry forward up to five years. The credit is nonrefundable. |
| Parents paying their own child’s tuition | Direct tuition payments are not qualifying SGO contributions. Gifts cannot be earmarked for a particular student. | No credit for the direct tuition payment. |
| Students seeking scholarships | Eligible to enroll in public elementary or secondary school. Prior calendar year household income no greater than 300% of area median gross income. Location and family size matter. | Scholarship assistance for qualifying expenses. Eligibility does not guarantee an award. The $1,700 donor cap is not a scholarship award cap. |
Chart sources: Internal Revenue Code Section 25F and October 2026 Treasury and IRS guidance. [1, 2, 3]
Who Can Receive Scholarships
The income test applies to scholarship recipients. An eligible student must belong to a household whose income for the calendar year before application does not exceed 300% of area median gross income and must be eligible to enroll in a public elementary or secondary school. The applicable threshold depends on location and family size, rather than a single national income limit. [1, 3]
Qualified expenses extend beyond private school tuition. They can include fees, academic tutoring, books, supplies, and qualifying special needs services connected with attendance at a public, private, or religious school. Certain school provided or required transportation, uniforms, and extended day programs can also qualify. Each expense must meet the statutory conditions. [4]
Scholarship organizations must verify eligibility, and donations cannot be earmarked for a particular student. A parent’s donation therefore cannot be designated for that parent’s child. Eligibility also does not guarantee an award. Families will need to understand each organization’s application process, funding availability, and scholarship priorities. [1]
The Colorado Side
Colorado has made an advance election to participate for 2027. The IRS includes Colorado on its participating state list dated September 14, 2026. Participation allows qualifying organizations in Colorado to become part of the federal program, provided the state identifies eligible organizations and submits the required list. [5]
That election is separate from creating a Colorado income tax credit. The benefit described here is claimed on the federal return. Colorado’s role includes identifying eligible scholarship organizations, while families and donors must confirm the organization’s qualification for the applicable year. A nonprofit’s charitable status alone is insufficient. [1, 5]
Colorado lawmakers also considered HB26 1292, which would have established requirements related to participating organizations and schools receiving scholarship funds, including nondiscrimination and disability protections. The House Education Committee postponed the bill indefinitely on April 30, 2026. It did not become law, so its proposed requirements should not be presented as enacted Colorado rules. [6]
For Colorado donors, confirm qualification before contributing and review any state tax treatment with your CPA. For families, monitor participating organizations for application dates and eligible services. Keep education funding plans flexible until an award is confirmed.
A Familiar Example ACE Scholarships
Integrity Wealth Advisors is familiar with Ace Scholarships, a Colorado organization preparing for the new federal credit. For families interested in supporting educational opportunity, ACE offers a familiar example of an organization preparing to participate in the new federal framework.
ACE has supported students and families for more than 25 years. Its Education Freedom Tax Credit resource explains the contribution process, qualifying education expenses, and the different paths available to donors and families seeking scholarships. [7]
ACE is currently inviting commitments for 2027. Making a commitment in 2026 is different from making a qualifying contribution for the 2027 tax year. Before funding a gift intended to qualify for the credit, confirm ACE’s inclusion on the applicable participating state’s SGO list and follow its contribution instructions. Families should separately confirm scholarship application dates and eligibility requirements. [1, 7]
Learn more: https://www.acescholarships.org/eftc/
Putting the Opportunity in Context
For families that value education as part of their charitable giving, this credit may create a useful annual opportunity. The decision should still begin with the organization’s mission, stewardship, and the students it serves.
For parents and grandparents, scholarship funding may become another resource within a broader education plan. It should be coordinated with savings, cash flow, and other available assistance rather than assumed in advance.
Before 2027, consider reviewing your education and giving priorities with your advisor and CPA. Identify organizations you would like to support, confirm current eligibility, and determine how the credit fits your tax picture. Intention comes from connecting the opportunity to what matters to your family.
Information reflects law and guidance available October 6, 2026. Proposed regulations may change before becoming final. This article is educational and should be reviewed in light of your individual tax circumstances.
Sources and Editorial Notes
1. Internal Revenue Code Section 25F
https://www.law.cornell.edu/uscode/text/26/25F
2. IRS announcement dated October 1, 2026, including proposed joint return treatment and temporary procedural regulations
https://content.govdelivery.com/accounts/USIRS/bulletins/42d6618
3. Proposed regulations published October 2, 2026, including statutory background, carryforward rules, and recipient eligibility
https://www.govinfo.gov/content/pkg/FR-2026-10-02/html/2026-20277.htm
4. Internal Revenue Code Section 530(b)(3)(A), incorporated by Section 25F
https://www.law.cornell.edu/uscode/text/26/530
5. IRS participating state list for 2027, dated September 14, 2026
6. Colorado General Assembly HB26 1292 status and history
https://leg.colorado.gov/bills/HB26-1292
7. ACE Scholarships Education Freedom Tax Credit resource
Before publication, refresh Colorado participation, organization listings, and final federal regulations. The $3,400 joint return treatment is expressly identified as proposed guidance. The ACE relationship statement reflects Integrity’s supplied history. Do not describe ACE as approved for a particular state and year without confirming the applicable SGO list. No specific scholarship award amount or Colorado income threshold is assumed. No separate Colorado tax credit or additional state deduction is promised.
