Federal Scholarship Tax Credit: How to Choose an SGO

Last updated: October 28, 2026

Starting January 1, 2027, you can give up to $1,700 to a scholarship granting organization (SGO) and take the same amount off your federal income tax. A married couple filing jointly can claim up to $3,400 under Treasury’s proposed rules if each spouse gives $1,700. The money pays for K-12 scholarships that families use for private school tuition, tutoring, special-needs services, books and other learning costs. This guide covers how the credit works, which states take part, and how to choose an SGO you can trust with your gift.

This guide is general information, not tax advice. Talk to a tax professional about your own return.

What is the federal scholarship tax credit (Education Freedom Tax Credit)?

The federal scholarship tax credit comes from section 25F of the Internal Revenue Code, which Congress added in the 2025 reconciliation law (Public Law 119-21, section 70411, signed July 4, 2025). The IRS calls it the Federal Scholarship Tax Credit (FSTC). Treasury calls it the Education Freedom Tax Credit. Same law, two names.

The idea is simple. You give cash to a nonprofit that awards K-12 scholarships, and the federal government gives you a tax credit for the same amount, up to the cap (26 U.S.C. § 25F(a)–(b)). Families then apply to that nonprofit for help with education costs. For the first time, a national program lets ordinary taxpayers fund school choice directly, and parents decide how the help gets used.

EFI has followed the law since it passed. For background, see Examining the New Federal Scholarship Tax Credit and our coverage of the IRS’s proposed rule.

How much is the tax credit for donating to school choice?

Up to $1,700 per taxpayer each year. The statute caps the credit at $1,700 (§ 25F(b)(1)).
Up to $3,400 on a joint return. Treasury’s proposed regulations read the cap as applying to each spouse. A couple can claim $3,400 if each spouse makes $1,700 in qualified contributions.
Dollar for dollar. A credit cuts your tax bill directly. Give $1,700 and you owe $1,700 less, while a deduction only lowers the income you’re taxed on (Treasury fact sheet).
No itemizing needed. You can claim the credit whether or not you itemize (Treasury fact sheet).
Nonrefundable, with a five-year carryforward. The credit can bring your federal income tax down to zero but won’t produce a refund on its own. If you can’t use all of it in one year, the unused part carries forward for up to five years, oldest credits first (§ 25F(f)).
Cash only. The proposed rules count physical currency, checks, money orders, bank transfers, credit and debit cards and after-tax payroll deductions, in U.S. dollars. Stock, property and digital assets don’t count (proposed regulations).
No double benefit. You can’t also deduct the credited part of the gift as a charitable contribution (§ 25F(e)). Anything you give above the credited amount may still be deductible under the usual charity rules.
Individuals only. The credit goes to individuals who are U.S. citizens or residents. Under the proposed rules, gifts made through a partnership or S corporation don’t qualify. Business owners give personally.

Your $1,700 cap doesn’t limit the size of a student’s scholarship. SGOs pool gifts and set award amounts themselves (Treasury fact sheet).

When does the federal scholarship tax credit start?

Gifts made on or after January 1, 2027 count. The statute applies to taxable years ending after December 31, 2026 (IRS news release IR-2026-117). You’ll claim a 2027 gift on your 2027 federal return, which most people file in 2028.

Treasury and the IRS published proposed regulations and companion temporary regulations in the Federal Register on October 2, 2026. Taxpayers, states and SGOs may rely on the proposed rules for gifts made from January 1, 2027, until final rules come out. Comments on the proposed rules are due December 1, 2026. A public hearing is scheduled for December 15, 2026, if anyone asks to speak by December 1; otherwise it will be cancelled.

Which states have opted in?

As of October 28, 2026, 31 states have said they’ll participate in 2027, and 30 of them are on the IRS’s official list. The IRS participating-states page (last updated October 22, 2026) lists 30 states. The 31st is New York: Governor Hochul said on October 9 that New York will participate (Governor Hochul’s statement). New York isn’t on the IRS’s October 22 list yet, and like every state joining for 2027, it must file its election on Form 15714 by January 1, 2027. Education Week’s count of 31 matches, as secondary confirmation (Education Week, October 14, 2026).

Status for 2027	States	Source
On the IRS list (30)	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, Wyoming	IRS, as of Oct 22, 2026
Announced, not yet on the IRS list (1)	New York	Governor of New York, Oct 9, 2026; see EFI: New York Joins Federal School Choice Tax Credit Program
Governor has said no (3)	Minnesota, Oregon, Wisconsin	Wisconsin: Governor Evers’ veto message on Assembly Bill 602, Mar 30, 2026, vetoing a bill that would have required him to opt in. Minnesota: Governor Walz, “We are not doing it” (MPR News, Mar 24, 2026). Oregon: Governor Kotek’s statement declining (Education Week, June 12, 2026). None of the three has filed with the IRS.
Not yet decided (16 + D.C.)	Arizona, California, Connecticut, Delaware, Hawaii, Illinois, Maine, Maryland, Massachusetts, Michigan, New Jersey, New Mexico, Pennsylvania, Rhode Island, Vermont, Washington, and the District of Columbia	No election on the IRS list. Education Week, Oct 14, 2026 (secondary) counts 16 undecided governors plus D.C.

On October 22, the governors of California, Connecticut, Massachusetts, Michigan and New Jersey wrote to Treasury Secretary Scott Bessent asking for answers before they decide, according to Education Week, October 26, 2026 (secondary). EFI has covered the debates in California, Illinois and Michigan, and made the case for opting in back in April: Blue States: Adopt Federal Scholarship Tax Credit Now.

How and when a state can still join. The governor, or another official named under state law, makes the choice each year (§ 25F(g)). For 2027, the temporary regulations require a state to file an advance election on Form 15714 by January 1, 2027. It then has until February 15, 2027 to send the IRS its list of approved SGOs. A state that files the election but misses the list deadline is out for the year. In later years, a state can file an advance election between January 2 and September 30 of the year before and then send its SGO list between October 1 and January 1. After its first year, a state can instead make its election together with its SGO list in that October 1 to January 1 window. A state joining for the first time after 2027 will follow future IRS guidance.

Can I claim the credit if my state hasn’t opted in?

Yes. The law gives the credit to any U.S. citizen or resident who makes a qualified contribution, and it doesn’t require you to live in a participating state (§ 25F(a)). The IRS says taxpayers “may contribute to an eligible SGO regardless of their state of residence” (IR-2026-117). Treasury’s fact sheet says the same.

The catch is where the scholarships go. Your gift has to fund scholarships only in the state that listed the SGO (§ 25F(c)(3)). If you live in a state that hasn’t joined, you can still claim the credit, but your gift will help students in another state, and students in your own state can’t get these scholarships until your governor opts in.

What is a scholarship granting organization (SGO)?

An SGO is a nonprofit that collects these gifts and turns them into K-12 scholarships. To count under federal law, it must (§ 25F(c)(5) and (d)):

be a 501(c)(3) public charity, not a private foundation;
keep credit-eligible gifts in a separate account;
be on the SGO list of a participating state where it’s located;
award scholarships to at least 10 students who don’t all attend the same school;
spend at least 90 percent of its income on scholarships for eligible students;
pay only for qualified K-12 education expenses;
give priority to students who had a scholarship the year before, then to their siblings;
not earmark or set aside gifts for any particular student;
verify each applicant’s household income and family size; and
not award scholarships to disqualified persons, such as substantial contributors and their families.

Under the proposed rules, one SGO can serve several participating states. It must keep a separate account for each state and let donors choose how their gift is divided (proposed regulations). The proposed rules also bar participating states from adding SGO rules stricter than federal law, including limits on the kind of school a student may attend (IR-2026-117).

How do I choose the best SGO to donate to?

No single SGO is best for every donor, and EFI doesn’t rank or endorse them. The right one depends on which students you want to help and how much you trust the organization to handle your money well. Work through these questions before you give.

Is it on a participating state’s approved list? This is the one non-negotiable. A gift to an organization that isn’t listed doesn’t earn the credit. The proposed rules say the IRS will publish a combined SGO list on irs.gov, and donors can generally rely on it when they give (proposed regulations). As of October 28, 2026, the IRS hadn’t published its SGO list; states’ lists for 2027 are due by February 15, 2027 (temporary regulations). Until it appears, check your state’s official announcement or revenue department, and recheck the IRS list before you give.
Is it a 501(c)(3) public charity in good standing? Look up its name or EIN with the IRS’s Tax Exempt Organization Search. Private foundations don’t qualify.
Which state and which students? Your gift can only fund scholarships in the state that listed the SGO. Some SGOs focus on one city, faith tradition, grade range or kind of need, such as students with disabilities. Others serve a whole state or several states. Choose the mission you want to back.
What do its scholarships pay for? Some SGOs mainly fund private school tuition. Others fund tutoring, special-needs services or technology for public school students. The law allows all of these, so ask what this SGO actually funds.
How much reaches students? The law requires at least 90 percent of income to go to scholarships. Ask for the SGO’s actual share, its most recent Form 990 and its audited financial statements. The proposed rules require annual SGO reporting and audits (IR-2026-117). A well-run SGO will share these readily.
How fast does it award? Ask how many scholarships it awarded last year, the typical amount, and how long gifts sit before they reach families. An SGO that already runs a state scholarship program has a track record you can check.
Can you suggest a school? You can’t direct a gift to a particular student (§ 25F(d)(1)(E)). The statute and proposed rules bar earmarking a gift for a particular student but don’t address schools (proposed regulations). Ask the SGO what its policy is and get the answer in writing.
Does it handle the paperwork properly? The SGO must send you a written acknowledgment with a unique donor number by January 31 of the following year (proposed regulations). The donor-number system exists so SGOs don’t need your Social Security number. Ask how and when you’ll get yours.

A good SGO answers all eight questions without hesitation. For broader context on why donors back these programs, see Why Tax Credit Scholarship Programs Are Popular.

How do I claim the credit on my taxes?

Give cash to a listed SGO on or after January 1, 2027.
Say it’s a section 25F gift when you give. Under the proposed rules, the gift has to be designated as a qualified contribution at the time you make it, and the SGO deposits it in its separate account (proposed regulations).
Keep the acknowledgment. It should arrive by January 31, 2028 for 2027 gifts and include your unique donor number. If you give to more than one SGO, each will send a different number.
File Form 8525, Federal Scholarship Tax Credit, with your 2027 return. List each SGO and its donor number (IRS FSTC page). The IRS hadn’t posted Form 8525 as of October 28, 2026. Under the proposed rules, if you leave the donor number off, the IRS will presume you made no qualified contribution to that SGO unless you can show the acknowledgment or other proof the IRS accepts (proposed regulations).

Does it stack with my state’s scholarship tax credit?

Often, yes. If your state gives you a tax credit for the same gift, the federal credit is reduced by that state credit (§ 25F(b)(2)). Under Treasury’s proposed rules, the reduction comes off your qualifying contributions before the $1,700 cap applies, so a donor who gives more than $1,700 may still get the full federal credit (Treasury fact sheet). The proposed rules give an example: a $2,500 gift with a $500 state credit leaves $2,000 counting toward the federal credit, so the donor still gets the full $1,700 federal credit, not $1,200 (proposed regulations). Two more features of the proposed rules help donors:

State deductions don’t count against you. Only state credits reduce the amount that counts toward the federal credit, so a state tax deduction for the gift generally leaves it alone.
A taxpayer-friendly ordering rule. If one gift covers both programs, the state credit is counted first against the part you didn’t designate for the federal credit. Treasury’s proposed rules give this example: a donor in a state with a 100 percent credit of up to $2,000 gives $5,000 to an SGO and designates $1,700 for the federal credit. The $2,000 state credit is counted against the $3,300 the donor didn’t designate, so the donor can take the $2,000 state credit and the full $1,700 federal credit, $3,700 in tax savings.

State programs differ, so check your state’s rules with a tax professional before you split a gift.

Who can get a scholarship, and what can it pay for?

Eligibility. Under the statute, a student qualifies if he or she can enroll in a public elementary or secondary school and lives in a household whose income for the prior calendar year is no more than 300 percent of the area median gross income (§ 25F(c)(2)). That ceiling is high. Treasury and the IRS estimate that about 96 percent of children in participating states would be eligible under the proposed rules (IR-2026-117). The proposed rules would generally disregard non-cash items, such as imputed returns on home equity. They would also give families shortcuts to show eligibility, such as current enrollment in certain benefit programs or foster care. Eligibility doesn’t guarantee an award. Families apply to SGOs directly.

What scholarships cover. Qualified expenses follow the Coverdell list in section 530(b)(3)(A): tuition and fees, academic tutoring, special-needs services, books, supplies and equipment at a public, private or religious school. They also include uniforms, transportation and extended-day programs the school requires or provides, and computers, software and internet access for schoolwork. Scholarships are tax-free to the family (26 U.S.C. § 139K).

That breadth matters. A scholarship can pay a parochial school’s tuition, cover a reading tutor for a child in a district school, or buy the therapy a student with a disability has waited months for. The family decides what fits.

Starting January 1, 2027, a donation of up to $1,700 can turn into a scholarship a family picks for itself, at no net cost to a donor whose federal tax bill is large enough to absorb the credit. If your state is on the list, the money stays close to home. If it isn’t, you can still give, and you can tell your governor that families in your state deserve the same chance. Fund students, not systems.

Sources

Statute
– 26 U.S.C. § 25F, Qualified elementary and secondary education scholarships (added by Pub. L. 119-21, § 70411): https://www.law.cornell.edu/uscode/text/26/25F
– 26 U.S.C. § 139K, Scholarships for qualified elementary or secondary education expenses of eligible students: https://www.law.cornell.edu/uscode/text/26/139K
– 26 U.S.C. § 530(b)(3)(A), Qualified elementary and secondary education expenses: https://www.law.cornell.edu/uscode/text/26/530
– Public Law 119-21 (July 4, 2025), GovInfo: https://www.govinfo.gov/app/details/PLAW-119publ21

IRS and Treasury
– IRS, Federal Scholarship Tax Credit (FSTC) (updated Oct 23, 2026): https://www.irs.gov/government-entities/federal-state-local-governments/federal-scholarship-tax-credit-fstc
– IRS, FSTC Participating States (as of Oct 22, 2026): https://www.irs.gov/government-entities/federal-state-local-governments/federal-scholarship-tax-credit-fstc-participating-states
– IRS News Release IR-2026-117 (Oct 1, 2026): https://www.irs.gov/newsroom/the-trump-administration-advances-the-establishment-of-americas-first-nationwide-school-choice-program
– Treasury and Department of Education, Fact Sheet: President Trump Delivers Affordable School Choice Options Through Education Freedom Tax Credit (undated; released with the October 1, 2026 proposed rules): https://home.treasury.gov/system/files/136/Treasury-ED%20EFTC%20FAQ.pdf
– Federal Register, Federal Scholarship Tax Credit, proposed regulations REG-117199-25, 91 FR 62818 (Oct 2, 2026): https://www.federalregister.gov/documents/2026/10/02/2026-20277/federal-scholarship-tax-credit
– Federal Register, Federal Scholarship Tax Credit, temporary regulations, 91 FR 62655 (Oct 2, 2026): https://www.federalregister.gov/documents/2026/10/02/2026-20264/federal-scholarship-tax-credit
– IRS Form 15714, Advance Election to Participate Under Section 25F for 2027: https://www.irs.gov/pub/irs-pdf/f15714.pdf
– IRS Notice 2025-70: https://www.irs.gov/pub/irs-drop/n-25-70.pdf
– IRS Tax Exempt Organization Search: https://apps.irs.gov/app/eos/

State government
– Wisconsin Governor’s Veto Message, Assembly Bill 602 (Mar 30, 2026): https://docs.legis.wisconsin.gov/2025/related/veto_messages/ab602.pdf
– Office of the Governor of New York, Statement from Governor Kathy Hochul (Oct 9, 2026): https://www.governor.ny.gov/news/statement-governor-kathy-hochul-180

News (secondary confirmation only)
– Education Week, Democratic holdouts still aren’t committing (Oct 14, 2026): https://www.edweek.org/policy-politics/democratic-holdouts-still-arent-committing-to-trumps-school-choice-program/2026/10
– Education Week, Democratic Governors Have Questions About the Federal School Choice Program (Oct 26, 2026): https://www.edweek.org/policy-politics/democratic-governors-have-questions-about-the-federal-school-choice-program/2026/10
– Education Week, Another Democratic-Leaning State Will Pass on the Federal School Choice Program (June 12, 2026): https://www.edweek.org/policy-politics/another-democratic-leaning-state-will-pass-on-the-federal-school-choice-program/2026/06
– MPR News, Walz won’t opt Minnesota into federal education tax change (Mar 24, 2026): https://www.mprnews.org/story/2026/03/24/walz-wont-opt-minnesota-into-federal-education-tax-change
– WPR, Evers vetoes bill to join federal tax credit program (Mar 30, 2026): https://www.wpr.org/news/wisconsin-evers-vetoes-bill-federal-expansion-private-voucher-schools

How to Donate for the $1,700 Federal Scholarship Tax Credit and Choose an SGO

What is the federal scholarship tax credit (Education Freedom Tax Credit)?

How much is the tax credit for donating to school choice?

When does the federal scholarship tax credit start?

Which states have opted in?

Can I claim the credit if my state hasn’t opted in?

What is a scholarship granting organization (SGO)?

How do I choose the best SGO to donate to?

How do I claim the credit on my taxes?

Does it stack with my state’s scholarship tax credit?

Who can get a scholarship, and what can it pay for?

Sources

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