This Act increases the federal tax credit scholarship limit to $1,700 and establishes a mechanism for annual inflation adjustments starting in 2027.
Cindy Hyde-Smith
Senator
MS
The Federal Tax Credit Scholarship Improvement Act increases the annual tax credit limit for taxpayers to $1,700, effective for taxable years beginning after December 31, 2025. Additionally, the bill establishes a mechanism for future inflation adjustments to this limit to ensure the credit maintains its value over time.
Federal Tax Credit Scholarship Improvement Act Sets $1,700 Annual Limit and Future-Proofs for Inflation Starting in 2026
The Federal Tax Credit Scholarship Improvement Act is a targeted update to Section 25F of the tax code, focusing on how much you can claim and how those numbers stay relevant as the cost of living climbs. Starting in the 2026 tax year, the bill sets a hard cap of $1,700 per taxpayer for this specific credit. It’s a straightforward move to define the boundaries of the program, ensuring everyone knows exactly what the maximum benefit looks like on their tax return.
Putting a Ceiling on the Credit
Under Section 2 of the bill, the most any single taxpayer can claim for this credit in a given year is $1,700. For a family or a professional managing their yearly budget, this provides a predictable number to work with when planning educational expenses or charitable contributions tied to these scholarships. By setting this specific dollar limit, the bill moves away from any previous ambiguity, making it easier for you (or your tax software) to calculate your liability without needing a degree in forensic accounting.
The Inflation Guardrail
Recognizing that $1,700 today won't buy the same amount of groceries or tuition in ten years, the bill introduces an automatic inflation adjustment. Beginning after December 31, 2026, the $1,700 limit will be recalculated annually based on the cost-of-living adjustment defined in Section 1(f)(3) of the Internal Revenue Code. To keep things simple for the average person, the bill requires these adjustments to be rounded to the nearest $50. This means if inflation pushes the value up slightly, your credit limit won't be some weird number like $1,712.43; it’ll jump in clean, predictable increments.
Transparency and Timing
To ensure no one is caught off guard when filing season rolls around, the bill mandates that the Secretary of the Treasury must publish the new, adjusted limits by November 1 of each year. This gives you a two-month head start before the new tax year even begins to adjust your financial planning. Whether you’re a small business owner looking at your year-end contributions or a parent planning for the next school year, the goal is to provide a clear, inflation-protected roadmap for this specific tax benefit.