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 spends not less than 90 percent of its income on scholarships. The October 2, 2026 proposed regulations measure that income as the organization's gross receipts. A single-state SGO whose scholarship work is at least 85 percent of its activities may measure the 90 percent against its section 25F account
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

The credit is up to $1,700 per taxpayer ($1,700 single, $3,400 married filing jointly). Treasury and the IRS stated that amount in proposed regulations announced on October 1, 2026.

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 these requirements:

• Family income at or below 300% of the area median gross income for their location
• Eligible to enroll in a public elementary or secondary school
• In the state on whose SGO list the organization appears. The proposed regulations require an SGO to award these scholarships to eligible students in that state

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 gross 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 public, private, or religious elementary or secondary school. Section 25F uses the qualified-expense list in section 530(b)(3)(A), and the October 2, 2026 proposed regulations adopt that list
• 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 not less than 90 percent of its income 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 opt in by filing an election. The 2027 advance election uses Form 15714. A state must also submit its SGO list. A gift qualifies only for an SGO on a participating state's submitted list, not because the donor lives in that state. For 2027, the proposed regulations (REG-117199-25) and the temporary regulations (T.D. 10057), published in the Federal Register on October 2, 2026, say a state may provide that list on or before February 15, 2027. If the state does not submit the list, no SGO in that state qualifies. As of October 22, 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 participating-states page (as of October 22, 2026). Program rules remain on the Federal Scholarship Tax Credit (FSTC) page. This list continues to grow, so check the roster — or your state's education agency website — for the latest status.

On October 9, 2026, Governor Kathy Hochul's office said New York would participate. That statement is not an advance election and not a Form 15714 filing. New York is not yet on the IRS participating-states list (as of October 22, 2026). No state agency or SGO application process has been announced. New York must still file its election by January 1, 2027 (11:59 p.m.) and submit its SGO list by February 15, 2027. If New York does not submit that list, no SGO in New York qualifies. The SGOlist tracker is the page that carries each state's 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 a scholarship-organization program before, this is entirely new. States like Alaska and Colorado do not have a state scholarship tax credit, so the federal credit is a new program there. Montana already has a state Student Scholarship Organization credit; the federal credit is an additional program, not the state's first.

What this means for donors

The federal credit is reduced by any state tax credit claimed for the same contribution. A separate contribution can be planned for the other credit. The credit is up to $1,700 per taxpayer ($1,700 single, $3,400 married filing jointly).

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

1. Confirm the SGO is on a participating state's submitted list. The credit follows that list, not the donor's home state. A donor can give to a listed SGO in any participating state
2. Find that SGO. Start with the SGOlist directory
3. Make a cash contribution to the SGO on or after January 1, 2027
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	Cash gifts on or after this date can qualify, and only for an SGO on a submitted list
February 15, 2027	Deadline for a state to submit its 2027 SGO list. If it does not, no SGO in that state qualifies
April 2028	First federal tax returns claiming the credit (for tax year 2027)

Key takeaways

• The federal credit is up to $1,700 per taxpayer ($1,700 single, $3,400 married filing jointly)
• The federal credit is reduced by any state tax credit claimed for the same contribution
• Students in participating states with family income at or below 300% of area median gross income are eligible
• 30 states have made an advance election to participate for 2027, as of the IRS list dated October 22, 2026, with more expected
• New York is participating per the Governor's October 9, 2026 statement. That statement is not an advance election. New York is not yet on the IRS list, and no SGO list or application process has been announced. New York must still file its election by January 1, 2027 (11:59 p.m.) and submit its SGO list by February 15, 2027
• SGOs must meet federal standards including 501(c)(3) status, spending 90 percent of income on scholarships, and serving 10+ students
• The program takes effect January 1, 2027