Key Takeaways

• A new federal education tax credit under Section 25F begins in 2027, but it is capped at $1,700 per year and is nonrefundable.
• The credit is only available if a taxpayer’s state opts in and certifies eligible Scholarship Granting Organizations (SGOs).
• Contributions used for the SGO credit cannot also be claimed as charitable deductions and may be reduced by state-level credits.
• Strict qualification rules mean only certain nonprofits will be eligible, especially in the early years of the program.
• For most high-income dentists and practice owners, this credit is a supplemental tool, not a core tax strategy.

Starting in 2027, a new federal tax credit will enter the picture for individual taxpayers who support K–12 education through qualified scholarship organizations. Known as the Scholarship Granting Organization (SGO) tax credit, this provision was created under the One Big Beautiful Bill Act and added to the tax code as Section 25F.

At first glance, this credit looks like another charitable incentive. In reality, it operates very differently from traditional charitable deductions and has some important limitations that dentists and practice owners should understand before factoring it into their planning.

The big takeaway: this is a real credit, but it is narrow, conditional, and unlikely to be a game changer for most high-income earners.

How the SGO Tax Credit Works

Beginning January 1, 2027, individuals may claim a federal income tax credit of up to $1,700 per year for cash contributions made to qualified Scholarship Granting Organizations. The credit reduces federal tax liability dollar for dollar, but it is nonrefundable, meaning it cannot create a refund if no tax is owed. If the full credit cannot be used in a given year, unused amounts may be carried forward for up to five years.

For dentists and practice owners, federal tax liability is rarely the limiting factor. The more important questions are availability, coordination with other credits, and whether the credit adds value compared to existing strategies.

Why State Participation Matters More Than Income

One of the most misunderstood aspects of the SGO credit is that states must opt in before any taxpayer can claim it. No state is automatically included. States that choose to participate must formally elect to do so and submit a list of certified SGOs to the IRS. States can begin making these advance elections this year for 2027.

As of now, no states, including Texas, have opted in. If Texas does not participate, Texas-based dentists would only be able to claim the credit by donating to an SGO located in another participating state, assuming the organization accepts out-of-state donors and is properly certified. Whether that becomes practical will depend heavily on how states implement the program.

What Makes an Organization a “Qualified” SGO

Not every education-related nonprofit will qualify for this credit. To be eligible, an organization must meet strict criteria designed to ensure funds are used for broad-based scholarship support rather than individual benefit.

Among other requirements, a qualified SGO must:

• Operate as a 501(c)(3) public charity
• Use at least 90% of its income for scholarships
• Serve K–12 students from families earning no more than 300% of area median income
• Provide scholarships only for qualified education expenses
• Maintain separate accounting for credit-eligible contributions
• Avoid earmarking donations for specific students

These guardrails are important, but they also mean the pool of eligible organizations may be limited, particularly in the early years.

The Trade-Off Dentists Need to Consider

The SGO credit comes with a key restriction that matters for high-income taxpayers: no double dipping. If a taxpayer receives a state tax credit for the same contribution, the federal credit is reduced dollar for dollar. In addition, any contribution used to claim the SGO credit cannot also be deducted as a charitable contribution.

For dentists who already give charitably and rely on itemized deductions as part of their tax strategy, this trade-off may reduce the appeal. In many cases, the lost deduction could offset much of the credit’s benefit.

Who the Program Is Designed to Help

The scholarships funded through SGOs are intended for students from low- and middle-income families. Eligible students must meet income thresholds and may use scholarship funds only for qualified K–12 education expenses such as tuition, fees, tutoring, books, and special-needs services.

Beginning in 2027, scholarship amounts used for these qualified expenses are excluded from federal income for the recipient. From a policy standpoint, the goal is to expand access to education. From a tax planning standpoint, the benefit to donors is secondary and intentionally capped.

What This Means for High-Income Dental Professionals

Many dentists and practice owners will qualify for the SGO credit. The issue is not eligibility; it’s impact. At a maximum of $1,700 per year, the credit is helpful but modest. It may make sense for those who already support education-focused charities or who value the program’s mission, but it is unlikely to materially change overall tax strategy for most high-income earners. Think of this as a supplemental planning tool, not a cornerstone strategy.

Planning Ahead

As with many new tax provisions, the real planning opportunity lies in understanding the details before acting. For now, the most important things to watch are whether Texas, or your state, elects to participate, which organizations become certified, and how the credit interacts with existing charitable and state-level programs.

Used thoughtfully, the SGO credit may complement an existing plan. Used casually, it may add complexity without much benefit. If you’d like to talk through how this credit fits into your broader personal tax plan or charitable strategy as a dentist or practice owner, we’re happy to help you evaluate it in context rather than in isolation.