There’s a New Way for Your Clients to Support K-12 Education and Reduce Their Federal Taxes
Beginning January 1, 2027, through the new Federal Scholarship Tax Credit (FSTC) Program individual taxpayers will be able to claim a federal tax credit for contributions up to $1,700 to a scholarship granting organization (SGO). A state or the District of Columbia (State) must choose to participate in the FSTC and provide a list of qualified SGOs in that state to the IRS before an individual taxpayer can donate to an SGO within that State and claim the FSTC.
How It Works:
Your client donates up to $1,700 to a qualified SGO
The SGO uses those funds to award scholarships to eligible students
Your client claims the credit when they file their taxes – process forthcoming in guidance
They receive a federal tax credit of up to $1,700, available annually
Your client donates up to $1,700 to a qualified SGO
The SGO uses those funds to award scholarships to eligible students
Your client claims the credit when they file their taxes – process forthcoming in guidance
They receive a federal tax credit of up to $1,700, available annually
What You Need To Know
More opportunities for students and families. A 100% non-refundable tax credit for your clients.
Provide your clients the information on how they can unlock opportunities for K-12 students across the country through the federal tax credit scholarship program.
The Tax Benefit
This is a dollar-for-dollar reduction in federal income tax liability.
Eligibility Requirements for Your Clients:
Owe federal income tax, approximately 60 percent of all taxpayers have a liability
Contribute in cash (not stock or other property)
Donate to a qualified SGO in a state that has opted in to the program
Sign Up To Receive More Information:
Federal Scholarship Tax Credit: Q&A Guide
How does a taxpayer receive the credit?
The taxpayer makes a charitable cash contribution of up to $1,700 to a qualified SGO. Expected proposed rules will require the SGO to provide each donor with a timely written acknowledgment of their annual contributions, including the total amount of the donor’s qualified contributions and a unique donor number generated under an IRS-provided method. The SGO would also report donor and contribution information to the IRS using the unique donor number, and taxpayers claiming the credit generally would report that number on their Federal return.
What can scholarships be used for?
Scholarships can be used by students attending public, private, and religious schools. Qualifying expenses include school tuition, fees, tutoring, curriculum, special education services, and other qualified education expenses as allowed by existing Coverdell Savings Accounts under federal law.
What is an SGO?
An SGO is an organization that is tax-exempt under I.R.C. Section 501(c)(3), but is not a private foundation. They must maintain separate accounts to prevent co-mingling of qualified contributions and other amounts, and be included on the annual certified list in the covered state(s) for that year.
What are the requirements for a qualified SGO?
SGO’s must provide at least 10 scholarships to students who do not all attend the same school. Additionally, an eligible SGO must spend at least 90% of the income of the organization on scholarships for eligible students. It is expected that proposed rules will generally measure the 90 percent spending requirement against the organization’s total receipts, unreduced by expenses. However, if the organization’s activities are largely scholarship-granting activities, the organization could use a safe harbor under which “income of the organization” is measured by the amount held in a segregated account for FSTC. For a multistate SGO, that safe harbor would have to be satisfied separately for each State-specific segregated account.
Who is an eligible student?
An “eligible student” is from a household earning no more than 300% of the area median gross income and is eligible to enroll in a public school, grades K-12.
When will more guidance be released?
On June 9, 2026, Treasury officials provided a preview of forthcoming Treasury and IRS guidance for implementation of the new federal scholarship tax credit. The latest guidance delivers initial clarity on several outstanding implementation issues, providing SGOs and states with the information needed to continue preparing for a successful program launch. Further regulatory guidance expected around the start of the upcoming school year.
More questions?
