A new $1,700 tax credit lets you reroute money from the IRS to scholarships — but 23 states are sitting it out

You don't usually get to choose where your federal taxes go once they leave your paycheck.

A new credit changes that for up to $1,700 of your bill. Starting with the 2027 tax year, you can route that money to a private scholarship fund instead of the U.S. Treasury and claim back every dollar of it — if the right state has agreed to let you. So far, 23 of them haven't.

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Nearly half the country is sitting this one out. The Internal Revenue Service (1) (IRS) reported this month that 27 states have signed on to the Federal Scholarship Tax Credit (FSTC), created under the One Big Beautiful Bill Act — which means 23 states haven't yet joined. The states that joined are mostly Republican: Texas, Florida, Georgia, the Dakotas. The holdouts tend to be Democratic.

IRS Chief Executive Officer Frank J. Bisignano said the agency is "hopeful that additional states will decide to participate."

Why some states signed on while others stalled changes how much the credit is worth to you.