The One Big Beautiful Bill Act (OBBBA) introduces a new federal tax credit that permits taxpayers to claim up to $1,700 per taxpayer annually for donations to Scholarship Granting Organizations (SGOs) that provide scholarships to private or religious K-12 schools. Additionally, the bill offers new deduction incentives for taxpayers who itemize their deductions and those who opt for the standard deduction.
Tax Credit for Qualified Contributions to Scholarship Granting Organizations
Internal Revenue Code Section 25F introduces this new nonrefundable credit equal to 100% of qualified contributions capped at $1,700 per taxpayer annually.
When you make a charitable contribution to an SGO starting in 2027, the state tax credit you receive will lower the total amount you can claim. This means you can directly reduce the federal taxes you owe by that amount. This approach is better than just claiming a charitable deduction because it reduces your tax bill dollar-for-dollar.
For your contribution to qualify for this approach, it must be made to an organization that is a government-registered, qualified SGO. Currently, the following Pennsylvania programs appear to be in line with the federal requirements:
- Pennsylvania Educational Improvement Tax Credit (EITC)
- Opportunity Scholarship Tax Credit (OSTC)
- Pre-K scholarship programs
On July 24, 2025, Pennsylvania House Bill 1763 was proposed, which would have Pennsylvania’s programs participate in this federal tax credit program. RKL will continue to monitor Pennsylvania’s legislature to bring you the most up-to-date information on their participation in the program.
Deductions for Non-Itemizers
Beginning in 2026, taxpayers opting for the standard deduction can also benefit from an above-the-line deduction for cash donations to qualified charities. Single taxpayers can deduct up to $1,000, while married couples filing jointly can deduct up to $2,000 annually. It is important to note that this deduction does not apply to contributions made to private foundations or donor-advised funds. Additionally, this provision has not been adjusted for future inflation.
Deductions for Itemizers
New Floor on Deductions
Starting in the 2026 tax year, taxpayers who itemize deductions can only claim a deduction for charitable contributions that exceed 0.5% of their adjusted gross income (AGI). For instance, if your AGI is $200,000, you can only deduct donations that exceed $1,000.
Adjusted Gross Income Limits
Under the OBBBA, taxpayers who itemize deductions can permanently deduct cash contributions to public charities up to 60% of their AGI. Previously, this limit was set to revert to 50% starting in 2026, but the change makes the higher limit permanent.
Need help navigating charitable contributions under the OBBBA? Contact your RKL advisor and stay tuned to rklcpa.com for the latest guidance on individual, business and estate planning considerations in this time of unprecedented change.
