The Internal Revenue Service announced that 27 states have elected to participate in the Federal Scholarship Tax Credit (FSTC) program, a new federal initiative that allows eligible taxpayers to claim a tax credit for contributions made to qualifying scholarship organizations.
“It’s encouraging to see that 27 states have already signed up to participate in this program that promotes and supports elementary and secondary education,” said IRS Chief Executive Officer Frank J. Bisignano. “We are hopeful that additional states will decide to participate.”
According to the official IRS announcement, taxpayers may claim a federal tax credit of up to $1,700 for qualified contributions to Scholarship Granting Organizations (SGOs). These organizations provide scholarships to cover qualified elementary and secondary education expenses.
The program operates differently from a tax deduction. Instead of reducing taxable income, eligible taxpayers may receive a federal tax credit—up to the program’s annual limit—for qualified donations made to approved Scholarship Granting Organizations (SGOs). However, taxpayers must follow IRS rules, and not every state has elected to participate.
To be eligible for the credit, a taxpayer’s contribution must go to an SGO located in a state that has formally elected to participate in the program and submitted a list of qualified SGOs to the IRS.
The FSTC program was enacted under legislation referred to as the One, Big, Beautiful Bill. State participation in the program is voluntary. As of the announcement date, 27 states had signed up, including Alabama, Alaska, Arkansas, Colorado, Florida, Georgia, Idaho, Indiana, Iowa, and Louisiana, among others. The IRS announcement noted that the list of participating states was still being compiled at the time of publication.
IRS Chief Executive Officer Frank J. Bisignano said in the announcement that the agency is encouraged by the early participation and expressed hope that additional states will choose to opt in.
The program is relevant to taxpayers across the country who may wish to support private elementary and secondary education scholarships while also reducing their federal tax liability. Because participation depends entirely on a taxpayer’s state of residence and whether qualifying SGOs are available there, eligibility will vary significantly by location.
Taxpayers interested in claiming this credit should verify their state’s participation status and confirm that any organization they contribute to is on their state’s official list of qualified SGOs. Readers should consult the IRS directly at IRS.gov or speak with a qualified tax professional to determine how this program applies to their individual circumstances.
FAQs About the New Federal Scholarship Tax Credit Program
- What is the Federal Scholarship Tax Credit? The Federal Scholarship Tax Credit allows eligible taxpayers to claim a federal tax credit of up to $1,700 for qualified contributions to approved Scholarship Granting Organizations (SGOs) that fund K-12 scholarships in participating states.
- How much is the tax credit? Eligible taxpayers may claim a credit of up to $1,700, subject to IRS rules and program requirements.
- Do all states participate? No. Participation is voluntary. As of the IRS announcement, 27 states had elected to participate, with additional states expected to join over time.
- How do I know if my donation qualifies? Your contribution must be made to a qualified Scholarship Granting Organization (SGO) located in a participating state and recognized by the IRS and the state.
- Where can I find the list of participating states and approved organizations? The IRS maintains the official list of participating states and qualifying SGOs on its website and updates it as additional states complete the required election process.
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Amanda Blankenship is the Chief Editor for District Media. With a BA in journalism from Wingate University, she frequently writes for a handful of websites and loves to share her own personal finance story with others. When she isn’t typing away at her desk, she enjoys spending time with her daughter, son, husband, and dog. During her free time, you’re likely to find her with her nose in a book, hiking, or playing RPG video games.
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