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Common questions about the federal §25F scholarship tax credit, for donors, families and scholarship granting organizations.
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The Federal Tax Credit Scholarship Program is a federal income tax credit for private donations: individuals who are U.S. citizens or residents can claim a nonrefundable credit of up to $1,700 a year for cash contributions that they designate, when they give, as qualified contributions to Scholarship Granting Organizations (SGOs) listed by a participating State.
These organizations use the funds to provide scholarships for eligible elementary and secondary school students. The program was created by section 70411 of Public Law 119-21 (the FY2025 reconciliation act, also known as the One Big Beautiful Bill Act), signed into law on July 4, 2025, which added section 25F to the Internal Revenue Code. The credit applies to qualified contributions made on or after January 1, 2027.
Example: Jane, a taxpayer in California, gives $1,500 in 2027 to an SGO on the IRS SGO list and designates the whole gift as a qualified contribution. She claims no State tax credit for it. When she files her 2027 return in 2028, her federal credit is $1,500, which reduces the federal income tax she owes if she owes at least that much; any unused part can be carried forward for up to five years. This is general information, not tax advice; please consult a tax professional about your own situation.
Individuals who are U.S. citizens or residents can claim the credit for cash contributions they designate as qualified contributions to an SGO.
Corporations cannot, and a partner's or S corporation shareholder's share of a business's gift does not count. The credit equals the donor's qualified contributions for the year, reduced by any State tax credit claimed for them, up to $1,700 per taxpayer per year. It is nonrefundable, so it cannot exceed the federal income tax the donor owes. Married couples filing jointly are treated as separate taxpayers, so they may potentially claim up to $3,400 on their joint return, provided that each spouse has made qualified contributions of up to $1,700. Giving more is allowed: the $1,700 limit applies to the credit, not the gift (under the proposed rules' example, a $2,000 qualified contribution earns a $1,700 credit when no State credit applies, subject to the limit of the donor's federal income tax liability). A donor cannot also deduct as a charitable contribution the part of a gift for which the credit is allowed; any other part may be deductible if it meets the usual charitable deduction rules.
Example: John gives $1,000 to an SGO and designates it as a qualified contribution. His State gives him a $500 State tax credit for the same gift, so his federal credit is $1,000 − $500 = $500, as long as he owes at least $500 in federal income tax. He cannot also deduct, as a charitable contribution on his federal return, the $500 for which he claims the federal credit. This is general information, not tax advice; please consult a tax professional about your own situation.
Scholarships are available to students whose household income, for the calendar year before they apply, is not greater than 300% of their area median gross income, adjusted for family size, and who are eligible to enroll in a public elementary or secondary school.
A student must generally live in a State whose SGO list includes the SGO (with exceptions for some military and Tribal families). Priority is given to students who received a scholarship for the previous school year, and then to students who have a sibling who received a scholarship from the SGO, before other eligible students; for tutoring or special needs services, an SGO may base priority on need instead.
Example: Maria, a 7th grader, lives in a household of four in a State that lists her SGO. Suppose the area median gross income where she lives is $50,000: the limit for a household of four is 3 × $50,000 × 1.00 = $150,000. Her household's income of $120,000 is below that, so she is eligible. If she received a scholarship for the previous school year, she gets priority over new applicants. (The IRS will publish the actual area figures each year.)
Scholarships can be used for qualified elementary and secondary education expenses, as defined for Coverdell education savings accounts (26 U.S.C. 530(b)(3)(A)).
They include:
The SGO pays tuition and other school charges directly to the school; other expenses are paid to a verified vendor or reimbursed to the family against a receipt. Treasury has said it will issue more guidance on qualified expenses.
Example: Michael receives a $2,000 scholarship. His SGO pays $1,200 of private school tuition directly to his school, then, after his family submits receipts, reimburses them $300 for required textbooks and $500 for a laptop he uses for schoolwork. All three are qualified expenses under the program.
Not for federal income tax: under Internal Revenue Code section 139K, amounts received after December 31, 2026 from SGO scholarships for the qualified elementary or secondary education expenses of eligible students are excluded from federal gross income.
Example: Sarah receives a $3,000 scholarship from an SGO that pays her private school tuition and academic tutoring. Her family does not include the scholarship in gross income on their 2027 federal tax return.
SGOs are 501(c)(3) public charities (not private foundations), included on a participating State's SGO list, that provide scholarships to eligible students.
They must keep qualified contributions in a separate account that holds only those contributions and their earnings; spend at least 90% of their income on scholarships for eligible students by the end of the following taxable year; give scholarships to 10 or more students who do not all attend the same school; give priority to last year's recipients and then to students who have a sibling who received a scholarship from the SGO; verify each student's eligibility and every expense; and never earmark gifts for particular students or give scholarships to disqualified persons (the SGO's officers and directors, anyone who helps choose recipients, substantial contributors, and the family members of each).
Important: SGOs that participate in the federal scholarship tax credit program must spend at least 90% of their income on scholarships by the end of the taxable year after they receive it. Income generally means all of the SGO's gross receipts. An SGO listed by one State whose activities are at least 85% scholarship granting may choose to measure the test on its separate account of qualified contributions instead; an SGO listed by more than one State must have activities that are at least 85% scholarship granting and must measure the test that way, separately for each State's account. This effectively prohibits these SGOs from becoming an endowment-style scholarship fund where scholarships are given out based on the investment returns from an investment fund.
Example: Suppose Riverside Scholarship Fund, a hypothetical SGO that is a 501(c)(3) public charity on a participating State's SGO list, receives $100,000 in qualified contributions in 2027 and has no other income. By the end of 2028 it pays $92,000 in scholarships for 15 students at five different schools, more than the $90,000 (90%) required, after verifying each student's eligibility. The remaining $8,000 covers administration costs.
State participation is voluntary and is decided one calendar year at a time by the Governor or another official or body designated under State law.
A participating State submits its list of qualifying SGOs to the IRS, generally by January 1 of the year the list applies to; for 2027 only, a State must make an advance election on Form 15714 by January 1, 2027 and may submit its SGO list by February 15, 2027. SGOs can use qualified contributions only for scholarships to students who live in a State whose list includes the SGO (with exceptions for some military and Tribal families). Residents of nonparticipating states can still claim the tax credit for contributions to SGOs listed by participating States, but students living in nonparticipating states cannot receive these scholarships.
Example: Florida, which made an advance election for 2027, submits its list of qualifying SGOs to the IRS by February 15, 2027. An SGO on Florida's list uses qualified contributions to award scholarships to students who live in Florida. A New York resident can give to that SGO and claim the tax credit, but only students living in Florida can receive those scholarships.
The federal program bases student eligibility on 300% of area median gross income, adjusted for family size, rather than the federal poverty level, does not require prior public school attendance, and, under the proposed rules, does not let a participating State impose stricter SGO requirements.
Unlike state programs, which vary in design (e.g., donor eligibility, tax credit caps, or student requirements like prior public school attendance), the federal program is the first of its kind at the federal level. It uses 300% of area median gross income, adjusted for family size, rather than the federal poverty level to determine student eligibility. It does not require prior public school attendance, and the federal rules add no testing or accreditation requirements of their own for students or schools (what counts as a school is determined under State law). Under the proposed rules, a participating State may not impose stricter SGO requirements, such as limiting the types of schools students may attend.
Example: A State's own tax-credit scholarship program might require students to have attended public school the year before and cap its credit at a few hundred dollars. The federal program has no prior-public-school requirement and offers a credit of up to $1,700 per taxpayer per year, with student eligibility based on 300% of area median gross income.
Yes, the law does not prohibit students from receiving scholarships from both federal and state tax credit scholarship programs or other aid programs (e.g., the DC Opportunity Scholarship program).
However, under the proposed rules an SGO must have systems to keep awards to the same student for the same expense from adding up to more than its cost, and it pays tuition directly to the school.
Example: Emma, a student in Georgia, receives a $2,000 scholarship from an SGO funded by the federal credit and a $1,500 state scholarship, both toward her $5,000 tuition bill. Together they cover $3,500 of the bill, less than its cost, so both can be used; the SGO pays its $2,000 directly to her school.
Treasury and the IRS estimate that by 2030 more than 11 million taxpayers could make about $26 billion in qualified contributions a year to 600 to 700 SGOs in participating States, enough to fund about 2 million full-time scholarships of $12,000 or 5 million part-time scholarships of $4,500 a year.
These are estimates; actual results depend on State participation, donations, and SGO decisions. Treasury also says the credit does not divert money from local or state taxes, which make up the large majority of school funding.
Yes: the credit is nonrefundable, unused credit can be carried forward for up to five years, and only cash contributions qualify.
The tax credit is nonrefundable, meaning it can only reduce a taxpayer's federal income tax liability (after certain other nonrefundable credits) and is not paid out as a refund if the credit exceeds the liability. Unused credits can be carried forward for up to five years and are used first-in, first-out. Contributions must be in cash, in U.S. dollars (currency, check, money order, electronic transfer including by credit or debit card, or after-tax payroll deduction), not securities or digital assets, to qualify for the credit.
Example: Lisa designates a $1,700 gift to an SGO as a qualified contribution and claims no State credit for it, but her 2027 federal income tax liability, after her other nonrefundable credits, is only $1,200. She uses $1,200 of the credit to reduce her liability to zero and carries forward the remaining $500 to offset her 2028 tax liability. This is general information, not tax advice; please consult a tax professional about your own situation.
Section 25F of the Internal Revenue Code governs the program; on October 2, 2026, Treasury and the IRS published temporary regulations (TD 10057) and proposed regulations (REG-117199-25) under it.
The statute directs the Secretary of the Treasury to issue regulations and guidance to administer the program, including rules for SGO requirements, State submission of SGO lists, and recordkeeping or reporting. On October 2, 2026, Treasury and the IRS published two sets of rules: temporary regulations (TD 10057, 91 FR 62655), binding from December 1, 2026, which cover State elections and SGO lists, SGO registration on the IRS SGO portal, donor numbers, donor acknowledgments, and reporting; and proposed regulations (REG-117199-25, 91 FR 62818), covering the full framework, which taxpayers, SGOs, and States may rely on for contributions made from January 1, 2027, if they follow the parts that apply to them in their entirety and in a consistent manner. The proposed regulations may change before they are made final.
Example: Under the proposed rules, each SGO makes an annual certification, including that it spent at least 90% of its income on scholarships for eligible students. An SGO required to file an annual information return under section 6033(a) (Form 990 or 990-EZ) attaches the certification to that return; an SGO not required to file one sends it to the IRS separately by the 15th day of the 5th calendar month after the period it covers. Either way, it sends a copy to each State that lists it.
Eligibility is based on a household's income, for the calendar year before the scholarship application, being not greater than 300% of the area median gross income, adjusted for family size.
Area median gross income follows the method the U.S. Department of Housing and Urban Development uses for Section 8 housing, and the IRS will publish the figures each year. To find a household's limit, multiply 300% of the area median by HUD's current family-size multiplier:
| Household size | Multiplier |
|---|---|
| 1 | 0.70 |
| 2 | 0.80 |
| 3 | 0.90 |
| 4 | 1.00 |
| 5 | 1.08 |
| 6 | 1.16 |
| 7 | 1.24 |
| 8 | 1.32 |
| Each additional person | add 0.08 |
Example (from the proposed rules): in an area where the area median gross income is $100,000, a household of three qualifies with income up to $270,000 (3 × $100,000 × 0.90), and a household of four with income up to $300,000 (3 × $100,000 × 1.00).
The credit applies to qualified contributions made on or after January 1, 2027.
Contributions made in 2027 are claimed on the donor's 2027 federal income tax return, generally filed in 2028.
Example: In 2027, Tom gives $1,000 to an SGO on the IRS SGO list and designates it as a qualified contribution. If he claims no State credit for it, his credit is $1,000, which he claims on his 2027 return in April 2028, reducing the federal income tax he owes (up to the amount he owes; any unused part carries forward).
The program aims to support elementary and secondary education by incentivizing private donations to SGOs through federal tax credits, enabling eligible students to access scholarships for various educational expenses at public, private, or religious schools.
Example: A low-income family in Ohio uses a $2,500 scholarship to enroll their child in a private school with specialized programs, which they couldn't otherwise afford, fulfilling the program's goal of expanding educational access.
If your state does not participate by electing in and submitting a list of qualifying SGOs to the IRS, students living in your state will not be eligible to receive scholarships funded by qualified contributions (with exceptions for some military and Tribal families).
However, residents of nonparticipating states can still claim the federal tax credit for qualified contributions to SGOs listed by participating States.
Example: Mark lives in a state that has not opted in, so students there cannot receive these scholarships. Mark gives $1,700 to an SGO on another State's list, designates it as a qualified contribution, and claims no State credit for it. He can claim a federal credit of up to $1,700 on his 2027 return, limited to the federal income tax he owes. This is general information, not tax advice; please consult a tax professional about your own situation.
Yes: your SGO can start taking pledges even if your state has not opted in.
A pledge is a promise to give later; it is not a qualified contribution and earns no tax credit. A gift counts toward the credit only when it is made to an SGO on the IRS SGO list and designated as a qualified contribution at that time, and an organization that plans to solicit qualified contributions must register on the IRS SGO portal as soon as possible, and preferably before it appears on any State SGO list (we recommend registering before you start soliciting). If your state elects not to opt in for now (every year is a new opportunity to opt in or out), your donors can still direct their donations to SGOs in states that have opted in. But if they first pledge to donate to your SGO, then if your State decides to opt in in the future you will be ready with a list of donors who are already accustomed to using the tax credit. This will make start-up that much easier.
Example: Suppose California does not opt in for 2027. Amy, a taxpayer in California, gives $1,700 in 2027 to a qualified SGO in Nebraska, which made an advance election for 2027, and designates it as a qualified contribution. If California opts in for 2028 and lists the SGO Amy pledged to, Amy (who is already accustomed to using the Federal Scholarship Tax Credit) can direct her 2028 gift there.