A Parent’s Guide to the Federal Tax Credit for Scholarships

A new scholarship opportunity is coming for children in every state plus D.C.  — but whether families can use it will depend on decisions happening in their states today.

The Federal Tax Credit for Scholarships (FTCS), passed by Congress in 2025, is expected to begin operating January 1, 2027, and groundwork is already underway in many states.

For parents, the most important thing to know right now is simple: students being educated in public schools or educated privately may access scholarship funding, from as little as paying for uniforms and supplies to as large as paying for tuition, room and board.

However, your opportunity to access scholarship funding depends on whether your state’s leaders want your children to have that benefit.

A state governor, or person designated with authority by state law, must make this choice: elect the state to participate in the FTCS (children in that state can access new funding for education) or reject the FTCS (and reject the opportunity for your children to receive additional funding for your child’s educational needs).

Scholarships are funded by private donations, for which donors may receive a federal tax credit; states do not fund any part of the FTCS. This prompted Gov Polis of Colorado to call it a “no-brainer” for the state to access this “real boom of investment in kids.” Colorado has elected to participate. There are no sound reasons for a state to reject this additional funding for children’s education.

Here’s what families should understand as the program develops.

1. Check whether your state is participating

Each state’s governor, or person designated with authority by state law, must file an election to participate with the IRS. Later this year, the state must file with the IRS a list of nonprofit Scholarship Granting Organizations (SGOs) that meet federal requirements and wish to participate.

Kentucky recently passed legislation authorizing the Secretary of State to file the state’s election to participate, after their Governor refused. Several states are still deciding or are moving bills through the legislative process to authorize someone other than the governor to file the election to participate, while 26 states have already filed their election to participate.

For parents, that means the first step is simply to be informed about whether your state elects to participate. If it does, families will be able to apply for scholarships through SGOs participating in the FTCS.

If your state has not yet elected to participate in the FTCS, you can find information about your governor’s or legislature’s intentions by contacting your state senator or representative, and by contacting your governor’s office directly.

Also check back with EdChoice for updates. As new states elect to participate – or refuse to participate – we will post that information.

2. Independent nonprofits called Scholarship Granting Organizations (SGOs) will distribute funding for your child’s educational needs.

Scholarships will be funded directly by private citizens who generously give contributions to SGOs. These individual donors may receive a federal tax credit for their donations; SGOs will receive no money from the federal government.

Since the early 1900s, nonprofits have offered scholarships for education funded by donors who could claim a federal charitable deduction. Since 1997, states have been enacting school choice programs based on the SGO model first developed by a generous Indianapolis philanthropist in 1990.

Today, there are hundreds of SGOs funded by donors who receive a state tax credit for their donations. These SGOs already offer scholarships through state tax credit scholarship programs in 20 states. State tax credit SGOs typically handle tasks like:

• Accepting donations
• Awarding scholarships to eligible students
• Verifying family eligibility
• Ensuring funds are used for educational expenses

Now, donors who fund SGOs participating in the FTCS may claim a federal tax credit, which is a benefit designed to attract more donors. It is intended to generate additional funding for existing SGOs and incentivize new SGOs to be created in states that have not yet enacted state tax credit scholarship or other school choice programs. 

When the FTCS launches, families will apply for scholarships through organizations like these, not through the IRS or federal agencies.

3. Scholarships can help cover many education costs

Scholarships may help cover a wide range of education expenses, such as:

• Private school tuition and fees
• Textbooks and instructional materials
• Tutoring or specialized academic services
• Transportation or school-related costs
• Technology used for learning
• Services for students with disabilities

This flexibility allows families to pay for expenses associated with a variety of learning environments and educational needs.

4. SGOs may prioritize low- and middle-income families, or focus on specific educational needs, services, and opportunities

Eligibility for scholarships is designed primarily to help as many families as possible who might need help to provide an alternative education or additional educational resources to meet their children’s needs.

Students qualify if they are eligible to attend a public elementary or secondary school and their family’s income is below 300% of the median income in their area (calculated annually by the U.S. Dept of Housing and Urban Development). SGOs will have access to this data to verify eligibility.

SGOs may serve all children and all educational needs, while others will be free to design scholarships for specific purposes. For example, an SGO may choose to help children in communities where literacy is very low, absenteeism is very high, or in communities where children need vocational training, advanced college level learning, art and music instruction, or tutoring for a variety of subjects. Some students will need help to attend a different school where the child will feel comfortable enough to learn, while other students who are perfectly happy at their current school will need tutoring help in a particular subject, or may need help to afford uniforms or supplies not otherwise provided by the school.

5. Anyone can help fund scholarships

The new federal tax credit is an incentive that encourages charitable giving to meet children’s educational needs. Individuals who donate to SGOs may receive a dollar-for-dollar federal tax credit of up to $1,700 per year.

Although SGOs cannot earmark donations to serve only a particular student, parents, grandparents, community members, and other individual taxpayers can help expand scholarship opportunities for ALL students by donating to SGOs in states participating in the federal tax credit.

What Parents Should Do Now

Scholarships will not begin until 2027, but there are a few steps families can take now:

• Follow state policy decisions. Whether your state elects to participate in the FTCS will determine if scholarships become available in your state. Keep in touch with your state legislators and office of the governor. Feel free to check with EdChoice, too. We will do our best to post information as it becomes available.
• If you live in a state with a state tax credit scholarship program, and your state has elected to participate in the FTCS, reach out to SGOs in your state. Ask these nonprofits if they are considering offering FTCS scholarships. They are likely to have information about what to expect. Keep in touch with them.
• If you live in a state with a state tax credit scholarship program, but your state has not already elected to participate in the FTCS, reach out to SGOs in your state. Ask these nonprofits if they are encouraging your state to participate. If so, you could help. As of the date of this article, these states are Arizona, Kansas, Pennsylvania, Rhode Island, Virginia.
• Be informed about eligibility and application timelines. Each SGO will provide information, although this is unlikely to be available until late 2026.

For families looking for more flexibility in their child’s education, the Federal Tax Credit for Scholarships could soon become another pathway to finding the learning environment that works best.

Frequently Asked Questions:

When will scholarships become available?
The federal tax credit is effective January 1, 2027. Scholarships will become available after this date for children in states that have opted in, as soon as SGOs are prepared to operate.

Can families in every state participate?
Yes, but ONLY IF their state elects to participate in the FTCS. Families can only receive scholarships if their state participates in the FTCS.

How do families apply for scholarships?
Families will apply through SGOs located in their state, not through the federal government.

Can I donate to support scholarships?
Yes. Individuals with federal tax liability can donate to any SGO on the list of federal tax credit compliant SGOs submitted by states to the IRS and receive a federal tax credit of up to $1,700 for their contributions.

Is this the same as a school voucher or ESA?
No. Although the Federal Tax Credit for Scholarships may be used for a variety of educational options and resources like a state-funded ESA, it is not a state program or voucher. It is a federal tax credit for individuals who voluntarily give their own private money to fund scholarships administered by nonprofit SGOs. It is not a state program, and it is not direct government funding to students. The Federal Tax Credit for Scholarships is a federal tax credit to incentivize private citizens to help their neighbors fulfill their children’s educational needs.

For more, listen to our podcast on what this means for families.