Kentucky prepares to administer new federal education tax credit as state rules are still being set

A new federal tax credit for donations to scholarship-granting organizations is already authorized in Kentucky by House Bill 1, but state implementation steps, including SGO registrations, are not yet open.

3 min readEditor-approved Apex article

Kentucky is moving toward implementation of a new federal tax credit that could expand financial support for K-12 private-school scholarships, even as state officials work through the remaining rulemaking and registration steps. The program, described by state and federal officials as part of the federal “One Big Beautiful Bill Act” signed in July 2025, is expected to begin funding scholarships in Kentucky as approved scholarship-granting organizations are listed by the federal government.

In Kentucky, participation was authorized through House Bill 1, which became law in March 2026 after the Kentucky General Assembly overrode Gov. Andy Beshear’s veto. Under the state law, Kentucky’s Secretary of State is responsible for setting regulations, approving scholarship-granting organizations, and reporting Kentucky’s participation to the U.S. Treasury, according to the July 6 WKYT report from Frankfort.

The federal Education Freedom Tax Credit is designed as a dollar-for-dollar credit for individual donations to approved scholarship-granting organizations. The WKYT report says the credit is capped at $1,700 per year for a single filer, with married couples filing jointly able to claim up to $3,400 per household, and that unused credit can carry forward for up to five years.

Under federal eligibility guidelines described in the report, scholarships could be awarded to students eligible to enroll in public school whose household income is at or below 300% of the area median income where they live. The WKYT report also said scholarship funds could be used for a range of education-related expenses, including private-school tuition and fees, books, tutoring, technology, internet access, uniforms, and transportation.

Federal rules also place requirements on scholarship-granting organizations, including that they spend at least 90% of contributions on scholarships. WKYT reported that as of early July, SGO registration had not yet opened in Kentucky, meaning donors and families would not yet have the full pathway to use the tax credit through Kentucky’s administrative process while state approvals are pending.

The state’s timeline is tied to federal deadlines for determining which organizations are approved. The WKYT report said the first list of approved SGOs is due to the federal government by Jan. 1, 2027, which is also the date donations toward scholarships are expected to begin under the new program.

Across the country, other states have also been selecting whether and how to participate in the same federal tax-credit scholarship framework, while waiting for the official operational process to be fully defined. Coverage from K-12 Dive reported that states were awaiting program rules defining how they join the federal effort, with the program set to launch Jan. 1, 2027, aligning with Kentucky’s reported schedule.

For Kentucky families and potential donors, the near-term focus is on whether scholarship-granting organizations will be registered and approved in time to participate in the first funding cycle. Under Kentucky’s law, the Secretary of State’s work on implementing regulations and approving SGOs will determine when the state’s process is ready for the federal credit to operate in practice. Meanwhile, the federal list of approved organizations due by Jan. 1, 2027 will be the key step for determining which scholarship programs can be funded under the credit starting that date.

Why It Matters

The program’s ability to affect families depends on Kentucky completing its administrative steps for approving scholarship-granting organizations, with SGO registration not yet open as of early July.
Donations are expected to begin Jan. 1, 2027, tying state approval work to a federal deadline for listing approved organizations.
Household income and public-school eligibility thresholds, as described in the federal guidelines reported by WKYT, will shape who qualifies for scholarships funded through the program.
The credit’s dollar-for-dollar design and multi-year carryforward could change the incentive for charitable contributions to scholarship organizations, with potential statewide demand for approved SGOs.
Because Kentucky’s Secretary of State is responsible for approvals and Treasury reporting, implementation will be measured by the completeness and timing of state regulations and registrations rather than by federal authorization alone.

Sources

Key Facts

Kentucky opted into the federal scholarship tax credit program through House Bill 1, which became law in March 2026 after the General Assembly overrode Gov. Andy Beshear’s veto.
Under Kentucky’s law, the Secretary of State is responsible for establishing regulations, approving scholarship-granting organizations, and reporting Kentucky’s participation to the U.S. Treasury.
The federal tax credit is described as the Education Freedom Tax Credit, allowing individual donors to claim up to $1,700 per year ($3,400 for married couples filing jointly), with unused credit able to carry forward for up to five years.
The WKYT report says Kentucky had not opened SGO registration as of early July.
Federal eligibility guidelines in the report say scholarships could go to students eligible to enroll in public school with household income at or below 300% of the area median income.
The report says scholarships may be used for private-school tuition and fees and other education-related expenses, and that federal rules require SGOs to spend at least 90% of contributions on scholarships.
The first list of approved SGOs is due to the federal government by Jan. 1, 2027, when donations toward scholarships are expected to begin.