The Federal Tax Credit Scholarship Program: What You Need to Know

For the first time in U.S. history, there is a federal tax credit for donations to Scholarship Granting Organizations. Signed into law on July 4, 2025 as part of the One Big Beautiful Bill Act, the program takes effect January 1, 2027 and has the potential to dramatically expand K-12 scholarship access across the country.

Here's what families, donors, and SGOs need to know.

How the program works

The federal program follows the same model that has operated successfully at the state level for years:

1. A donor contributes cash to a qualified SGO
2. The donor claims a federal tax credit on their return — dollar-for-dollar, up to the annual cap
3. The SGO uses at least 90% of contributions to award scholarships
4. Eligible students use scholarships for tuition, tutoring, supplies, and other approved education expenses

The key difference from existing state programs is the funding mechanism: this credit reduces your federal income tax liability, not your state liability.

Credit amounts

Filing status	Max annual credit
Individual / single filer	$1,700
Married filing jointly	$3,400

The credit is available to individual taxpayers only — corporations are not eligible. It is nonrefundable, meaning it can reduce your federal tax bill to zero but won't generate a refund beyond that. There is no overall national cap on the total credits that can be claimed.

Who qualifies for scholarships

Students must meet two requirements:

• Family income below 300% of the area median income (AMI) for their location
• Enrolled in a participating state — the student's state must have opted into the program

Unlike some state programs, there is no grade restriction written into the federal law — eligible students span K-12. Income eligibility is tied to area median income rather than the federal poverty level, so the dollar threshold varies by location.

What scholarships can cover

Scholarship funds can be used for a broad range of K-12 education expenses:

• Tuition and fees at a qualifying private school
• Tutoring and academic support services
• Special needs services and educational therapies
• Textbooks, curriculum, and school supplies
• Transportation to and from school
• Online learning programs and courses

This mirrors the flexibility found in many state Education Savings Account programs.

SGO requirements

Not every nonprofit can participate. To qualify as an SGO under the federal program, an organization must:

• Be organized as a 501(c)(3) nonprofit
• Spend at least 90% of revenue on qualifying scholarships
• Award scholarships to 10 or more students attending more than one school
• Prioritize returning students first, then siblings of current scholarship recipients
• Operate within a state that has opted into the program

States are responsible for identifying and certifying their approved SGOs to the IRS.

Which states are participating

States must opt in by submitting Form 15714 to the IRS, and must also give the IRS a list of the SGOs in that state before donors there can claim the credit. As of September 14, 2026, 30 states have made an advance election to participate for 2027:

Alabama, Alaska, Arkansas, Colorado, Florida, Georgia, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, North Carolina, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, West Virginia, and Wyoming.

The IRS publishes the current list on its Federal Scholarship Tax Credit (FSTC) page. This list continues to grow, so check there — or your state's education agency website — for the latest status.

What this means for families

For families in states that already have SGO programs, the federal credit means more donor dollars flowing to SGOs — which could mean more scholarships available and potentially shorter waiting lists.

For families in states that never had an SGO program before, this is entirely new. States like Alaska, Colorado, Montana, and others are entering the SGO landscape for the first time, creating scholarship opportunities where none previously existed.

What this means for donors

The federal credit is a separate benefit from any existing state tax credit, but you cannot claim both credits on the same donation. Donors in states with existing SGO programs will need to decide which credit to use for each contribution. Final IRS guidance on how the federal and state credits interact is still pending.

The steps to donate will look familiar to anyone who has used a state program:

1. Confirm your state has opted in to the federal program
2. Find a qualified SGO in your state — start with the SGOlist directory
3. Make a cash contribution to the SGO
4. Claim the credit on your federal tax return (starting with tax year 2027)

What this means for SGOs

The federal program represents a major growth opportunity. SGOs in participating states should prepare for:

• Increased donor interest — a new pool of donors motivated by the federal credit
• New compliance requirements — federal certification standards, 90% spending requirement, and priority rules for returning students and siblings
• Higher visibility — national attention on the SGO model will drive awareness

SGOs that don't yet meet the federal requirements (10+ students, multiple schools, 501(c)(3) status) should start preparing now to be eligible when the program launches.

Key dates

Date	Milestone
July 4, 2025	One Big Beautiful Bill Act signed into law
2026	States opting in via IRS Form 15714; SGOs preparing for certification
January 1, 2027	Federal tax credit takes effect — donations made on or after this date qualify
April 2028	First federal tax returns claiming the credit (for tax year 2027)

Key takeaways

• The federal government now offers a dollar-for-dollar tax credit (up to $1,700 / $3,400 jointly) for donations to SGOs
• The credit cannot be combined with a state credit on the same donation — final IRS guidance on interactions is pending
• Students in participating states with family income below 300% of area median income are eligible
• 30 states have made an advance election to participate for 2027, with more expected
• SGOs must meet federal standards including 501(c)(3) status, 90% scholarship spending, and serving 10+ students
• The program takes effect January 1, 2027