What Is the Federal Scholarship Tax Credit (Section 25F)?
- Under IRC § 25F, beginning January 1, 2027, individual taxpayers may claim a federal tax credit of up to $1,700 for certain cash contributions to Scholarship Granting Organizations (SGOs). (irs.gov)
- The credit is only available if your state (or D.C.) elects to participate and posts a list of SGOs in that state. (irs.gov)
State Participation & What It Means
As of July 24, 2026, 27 states have elected to participate.—that includes: Alabama, Alaska, Arkansas, Colorado, Florida, Georgia, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, West Virginia, Wyoming. (irs.gov)
If your state is not yet on the list, donations to SGOs in that state will not be eligible for the federal tax credit—unless the state elects in later and publishes the required list.
What Individuals Should Know & Do
- Check your state’s status on the IRS website to confirm if it has elected to participate. If yes, that state must also publish a list of qualified SGOs. Only then can individuals make qualifying contributions. (irs.gov)
- Make contributions before Dec 31, 2026, to SGOs in participating states, for the credit in your 2027 return. Contribution timing matters.
- Contributions must be cash-only, and to an SGO that meets IRS/DC/state’s rules. Keep receipts and confirmation.
- Limit is $1,700 per taxpayer all states combined. Multi-state donations don’t create extra credit unless to SGOs in different participating states—but documentation must support eligibility per state.
What States Need to Do
- States must make an Advance Election under § 25F to participate for tax year 2027. That includes submitting lists of qualified SGOs to the IRS. (irs.gov)
- Ensure those SGOs meet rules: elementary/secondary education scholarships, proper governance, reporting etc. States already on board have taken those steps.
- Publicize the SGOs and required state list so donations are valid for the credit.
Example Scenarios
Scenario A – Emily in Texas
- Texas is participating.
- Emily donates $1,500 to a participating SGO in Texas in December 2026.
- On her 2027 federal return, she claims a $1,500 FSTC credit. She needs to confirm the SGO is on the Texas list.
Scenario B – Bob in a non-elected state
- Bob lives in a state that hasn't made the election.
- Even if he donates to an SGO, he cannot claim the federal credit until his state elects in and publishes required list.
Summary
The FSTC under Section 25F presents a powerful incentive for individuals and states to promote education support through SGOs. If your state participates, individuals can reduce their federal tax liability by up to $1,700 for qualifying contributions starting in tax year 2027. Keep proof of donations, watch your state’s status, and ensure SGOs are recognized. This is a relatively new credit—with deadlines and state-specific conditions, so preparation is key.
Category: Tax Planning | Digital Nomad (if abroad and engaging in US donations)