The U.S. Capitol Building
FAQs about the new Federal Tax Credit Scholarship Program
Q1. What is the new Federal Tax Credit Scholarship Program?
A1. The “One Big Beautiful Bill” was signed by the President on July 4, 2025. It created the Education Freedom Tax Credit which is a new federal tax credit designed to expand educational options for all school aged children by encouraging donations to nonprofits like AAA Scholarship Foundation (“AAA”) that grant scholarships to students for qualified elementary and secondary education expenses within the states they serve.
Q2. How are Education Freedom Tax Credit scholarships funded?
A2. Individual taxpayers may donate up to $1,700 per year to nonprofit Scholarship Granting Organizations (SGOs) like AAA and receive a dollar-for-dollar federal tax credit to apply against their federal tax liability for that calendar year.
Q3. Is a dollar-for-dollar tax credit donation to AAA the same as a charitable tax deduction donation?
A3. No, they are very different. Tax credit donors will reduce their federal income taxes 100% for every tax credit dollar they donate to AAA. This is known as a dollar-for-dollar tax credit donation. By comparison, donors who make charitable contributions only reduce their federal income taxes by a small percentage (generally 12 – 22%) for every dollar they donate. This is because a charitable tax deduction reduces the income you pay taxes on.
Q4. How will SGOs use the donated funds?
A4. As an SGO, AAA will use the donated funds to provide Education Freedom Scholarships to eligible k-12 students. The scholarships can be used for tuition, transportation, school supplies, and other educational expenses in connection with enrollment or attendance at an eligible elementary or secondary school. Eligible students are those who are (1) members of a household with an income that is not greater than 300% of the area median income and (2) eligible to enroll in a public elementary or secondary school.
Q5. How will AAA determine 300% of the area median income?
A5. Every year the area median income is provided by HUD on their website here. To determine 300% of your area median income, go to that website, scroll down to the Click Here for FY2025 IL Documentation button, select your state, then select your county/district, lastly, click the View County Calculations button. Multiply the result showing in the Median Family Income box by 300%.
Q6. How does a student qualify for an Education Freedom Scholarship?
A6. Families living in opt-in states will apply with AAA for scholarships for their students (up to grade 12). In order to prove their eligibility, households must complete AAA Scholarship Foundation’s application process and provide supporting documentation by the stated deadline. To receive an AAA scholarship, the households must meet both the federal and AAA’s requirements.
Q7. When does the Education Freedom Tax Credit scholarship program start?
A7. The program begins on January 1, 2027.
Q8. When can I apply with AAA for an Education Freedom Scholarship for my child?
A8. Please bookmark this page and check back often for more details about the federal tax scholarship program.
Q9. Does AAA have any scholarship we can apply for now?
A9. Click this link to find out more about the scholarships available now!
Click here for a Fact Sheet about the Education Freedom Tax Credit from the Treasury and IRS
Click here to learn more about high quality SGOs >>>>
Click here to learn how to Adopt-A-School with your AAA federal tax credit donation>>> (coming soon)
Click here to learn more about how your school can benefit from our new AAA School Fund>>>