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Federal Scholarship Tax Credit FAQs

Get clear, current answers about Section 25F, the federal scholarship tax credit, including donor eligibility, student eligibility, qualified expenses, participating states, and Scholarship Granting Organizations.

What is the federal scholarship tax credit?

Section 25F creates a nonrefundable federal income tax credit for eligible individuals who make qualifying cash contributions to Scholarship Granting Organizations, or SGOs, included on a participating state’s list. The credit generally equals the qualifying contribution, up to $1,700 for the taxable year, and remains subject to federal tax-liability and other statutory limitations.

The credit is available to an individual who is a citizen or resident of the United States and makes a qualifying cash contribution to an eligible SGO. Section 25F is an individual federal income tax credit rather than a corporate tax credit. The amount a taxpayer can use will depend on the taxpayer’s qualifying contribution, federal income tax liability and other applicable limitations.

Qualifying contributions may be made beginning January 1, 2027. A qualifying contribution made during 2027 would generally be reported on the donor’s 2027 federal income tax return, which would normally be filed in 2028. Contributions made during 2026 do not qualify for the Section 25F credit.

An eligible student generally must:

  • Be eligible to enroll in a public elementary or secondary school; and
  • Be a member of a household whose income for the calendar year before the scholarship application does not exceed 300% of the applicable area median gross income.

 

The SGO must verify the applicant’s annual household income and family size. Meeting the federal eligibility requirements does not guarantee a scholarship; awards will also depend on the SGO’s application procedures, available funding and other applicable program requirements.

Section 25F incorporates the qualified elementary and secondary education expenses described in Internal Revenue Code Section 530. Depending on the circumstances, qualifying expenses may include:

  • Tuition and fees;
  • Academic tutoring;
  • Special-needs services for an eligible student with special needs;
  • Books, supplies and equipment connected with school enrollment or attendance;
  • Certain school-required or school-provided room and board, uniforms, transportation and extended-day programs; and
  • Certain computer technology, equipment, internet access and related services.

 

Each expense must satisfy the applicable statutory requirements. Not every after-school activity, electronic device, software purchase or technology expense automatically qualifies.

A qualified SGO must be a tax-exempt Section 501(c)(3) organization that is not a private foundation. It must maintain separate accounts for qualified contributions, satisfy the federal scholarship-administration requirements and be included on a participating state’s official list for the applicable year.

Additional requirements include:

  • Providing scholarships to at least 10 students who do not all attend the same school;
  • Spending at least 90% of the organization’s income on scholarships for eligible students;
  • Limiting awards to qualified elementary and secondary education expenses;
  • Verifying household income and family size;
  • Giving the required priority to previous scholarship recipients and then eligible siblings;
  • Not earmarking contributions for a particular student; and
  • Following the federal prohibition against self-dealing.

Yes. A state or the District of Columbia must voluntarily elect to participate and provide the IRS with a list of qualified SGOs located in that state. A contribution to an organization within a state cannot qualify through Section 25F unless the state participates and the organization is included on the applicable state list.

The statute does not require the donor to live in the same state as the SGO. The donor must be an eligible U.S. citizen or resident, and the contribution must go to an SGO listed by a participating state.

The SGO must use that contribution to fund scholarships for eligible students solely within the state where the organization is listed. Donors should still review current IRS filing instructions and confirm the organization’s official status before contributing.

Before the program begins, donors can follow federal and state updates and identify organizations preparing to seek SGO qualification.

Beginning January 1, 2027, a donor should:

  • Confirm that the state is participating for 2027;
  • Verify that the organization appears on the applicable official SGO list;
  • Make the contribution in cash;
  • Retain the required donor acknowledgment and contribution records; and
  • Report the qualifying contribution on the appropriate federal income tax return.

 

Do not assume that a contribution made during 2026, or a contribution to an organization that is not on an official state list, qualifies for the Section 25F credit.

Contact Friends of Education for general information about Section 25F, state participation, donor updates, family eligibility, school participation, or SGO preparation.

Email: info@pataxcredits.org
Phone: (215) 315-4210

Friends of Education cannot provide individualized tax or legal advice. Donors, families, and organizations should consult qualified advisers regarding their specific circumstances.

Section 25F is a nonrefundable federal income tax credit. This means it can reduce applicable federal income tax liability, but it does not independently create a refund beyond that liability.

An unused credit amount may generally be carried forward for up to five succeeding taxable years, subject to the federal limitations and filing rules.

A contribution used to claim the Section 25F credit cannot also be claimed as a federal charitable contribution deduction.

A taxpayer may receive a state tax credit when permitted under an applicable state program, but the Section 25F federal credit is reduced by the amount of the state tax credit allowed for the same qualified contribution.

Status as of August 13, 2026: Pennsylvania does not appear on the IRS’s latest published list of 30 states that made advance elections to participate for 2027.

On August 5, 2026, a bipartisan group of Pennsylvania senators circulated a co-sponsorship memorandum announcing plans to introduce legislation addressing Pennsylvania’s participation. The official legislative page states that the proposal had not yet been submitted for introduction.

Pennsylvania’s status may change, so donors and organizations should check the latest IRS and Pennsylvania legislative updates before relying on this answer.

No. A qualified SGO may not earmark or set aside a qualifying contribution for a scholarship on behalf of a particular student.

Scholarship decisions must be made independently by the SGO under its written procedures, federal eligibility requirements, and statutory priority rules.

Amounts provided through a qualified SGO scholarship for qualified elementary or secondary education expenses of an eligible student are excluded from federal gross income under Section 139K.

Families should use scholarship funds only for eligible expenses and retain any records required by the SGO.

Still Have Questions About Section 25F?

Section 25F is a new federal program, and state participation and implementation guidance continue to develop. Contact Friends of Education for general updates about donors, families, schools, participating states and SGO preparation.

Official Section 25F Sources

This page is based on the enacted federal statute, current IRS guidance and official government records. Because implementation information may change, readers should review the latest primary sources.

IRS Federal Scholarship Tax Credit Guidance   •   Internal Revenue Code Section 25F   •   Internal Revenue Code Section 530   •   Pennsylvania Section 25F Co-Sponsorship Memorandum