New Federal $1,700 Scholarship Tax Credit to Launch in 2027, NH Model Offers Blueprint

The upcoming Federal Scholarship Tax Credit (FSTC), set to launch on January 1, 2027, is drawing significant attention, with new analysis from the American Enterprise Institute (AEI) suggesting that states should examine successful existing models like New Hampshire's Education Tax Credit (ETC) program. This federal initiative, established under the "One Big Beautiful Bill Act," will offer individual taxpayers a nonrefundable credit of up to $1,700 for contributions to K-12 scholarship-granting organizations (SGOs). The Treasury Department and IRS are currently in the rulemaking phase, seeking public comments on its implementation.

New Hampshire's ETC Scholarship Program, administered by Children's Scholarship Fund NH (CSF_NH) for over a decade, provides a state-level precedent. Under this program, businesses and individuals receive an 85% tax credit against state business profits, business enterprise, or interest and dividends taxes for donations that fund K-12 scholarships. These scholarships support low- and middle-income students in attending private schools, out-of-district public schools, online schools, or for homeschooling expenses, with eligibility capped at 300% of the federal poverty level.

Ryan Bilodeau highlighted the AEI's recent report, "Making the Federal Scholarship Tax Credit a Success," noting its alignment with New Hampshire's proven principles. According to Bilodeau, the report by Daniel Buck and Anna Low outlines key tenets that have ensured the ETC's efficacy:

"clear definitions and guardrails, respect for private and microschool independence, transparent and efficient SGO operations, [and] fraud prevention that protects families and taxpayers."

The AEI report emphasizes the need for Treasury rulemaking to protect private schools from overregulation and clarify ambiguous language within the federal law. It also suggests streamlining processes, such as allowing married couples filing jointly to each claim the $1,700 credit, effectively doubling the potential scholarship inflow. As federal rulemaking ramps up for 2027, New Hampshire's experience serves as a critical case study, demonstrating what is possible when scholarship programs are well-designed and responsibly managed.