Source Documents
The primary legal and regulatory texts that define the Federal Scholarship Tax Credit (FSTC).
Statute
Internal Revenue Code Section 25F: Qualified Elementary and Secondary Education Scholarships (Federal Scholarship Tax Credit)
Section 25F of the Internal Revenue Code, added by the One Big Beautiful Bill Act (Public Law 119-21), creates a federal income tax credit for individuals who make charitable contributions to qualifying Scholarship Granting Organizations. The credit is nonrefundable and dollar for dollar, and the statute provides that the credit allowed "to any taxpayer for any taxable year shall not exceed $1,700", with any unused amount carried forward up to five years. The credit is permanent, has no sunset, and applies to taxable years ending after December 31, 2026.
View document →Scholarships for Qualified Elementary or Secondary Education Expenses of Eligible Students
IRC Section 139K provides that gross income does not include amounts provided to an individual, or a dependent of that individual, under a scholarship for qualified elementary or secondary education expenses of an eligible student when the scholarship is provided by a scholarship granting organization. In plain terms, scholarships funded through the Federal Scholarship Tax Credit program are not treated as taxable income to the recipient student or family. By its terms, the exclusion applies to amounts received after December 31, 2026, in taxable years ending after that date.
View document →Internal Revenue Code Section 530(b)(3): Qualified Elementary and Secondary Education Expenses
Section 530 is the Coverdell education savings account statute, and subsection (b)(3) defines the term "qualified elementary and secondary education expenses." As written, it covers expenses for tuition, fees, academic tutoring, special needs services for a special needs beneficiary, books, supplies, and other equipment connected with attendance at a public, private, or religious elementary or secondary school. It also covers room and board, uniforms, transportation, and supplementary items and services required or provided by the school, and the purchase of computer technology, equipment, or internet access used by the student and family during school years.
View document →Legislative provision
One Big Beautiful Bill Act, Section 70411: Tax Credit for Contributions of Individuals to Scholarship Granting Organizations
Section 70411 of the One Big Beautiful Bill Act (Public Law 119-21), signed July 4, 2025, added two provisions to the Internal Revenue Code. Subsection (a) creates Section 25F, a nonrefundable federal income tax credit for an individual's cash contributions to a qualified scholarship granting organization, capped so the credit allowed "to any taxpayer for any taxable year shall not exceed $1,700", with any unused amount carried forward up to five years. Subsection (b) adds Section 139K, which excludes the scholarships from the recipient's gross income, and subsection (c) sets the effective date, applying the credit to tax years ending after December 31, 2026.
View document →IRS guidance
Notice 2025-70: Request for Comments on Individual Tax Credit for Qualified Contributions to Scholarship Granting Organizations
IRS Notice 2025-70 is the first IRS guidance interpreting new Internal Revenue Code Section 25F, the Federal Scholarship Tax Credit added by Section 70411 of the One, Big, Beautiful Bill Act (Public Law 119-21). It requests public comments while previewing how forthcoming proposed regulations will treat Scholarship Granting Organization (SGO) requirements: an SGO must be described in Section 501(c)(3), exempt under 501(a), and not a private foundation; keep qualified contributions in one or more separate accounts to prevent co-mingling; serve 10 or more students who do not all attend the same school; and spend not less than 90 percent of the organization's income on scholarships for eligible students. The notice states the credit allowed to any taxpayer for any taxable year may not exceed $1,700, carries forward up to five years on a first-in, first-out basis, and reads the 90 percent test against all of the organization's income, including unrelated business income, not just the donations held in the separate account.
View document →Revenue Procedure 2026-6: State Advance Election to Participate Under Section 25F
Before a state's Scholarship Granting Organizations can qualify donors for the Section 25F credit in 2027, the state has to opt in, and this Revenue Procedure is the only route the IRS will accept for doing so ahead of time. A state, or the District of Columbia, makes an Advance Election by filing Form 15714, the Advance Election to Participate Under Section 25F for 2027, on or after January 1, 2026. The temporary regulations published October 2, 2026 set the 2027 deadlines: Form 15714 must be filed on or before January 1, 2027, and the state's list of qualifying SGOs is due on or before February 15, 2027. These dates are settled: the temporary regulations apply from September 1, 2026 and take effect December 1, 2026. No alternative method, and no altered version of Form 15714, will be accepted for the 2027 year.
View document →IRS Program Page: Federal Scholarship Tax Credit (Internal Revenue Code Section 25F)
This is the IRS's official program page for the new federal tax credit under Internal Revenue Code Section 25F. It confirms that starting January 1, 2027, an individual taxpayer may claim the credit for cash given to a Scholarship Granting Organization, up to the statutory limit of $1,700. The page is also where the IRS makes the participation rule plain: the credit applies only to gifts to Scholarship Granting Organizations in states that have signed on, so a state or the District of Columbia must elect into the program and give the IRS its roster of qualifying SGOs, and until it does, a gift to an organization there earns no credit. The IRS also keeps a running tally there of the states that have filed an Advance Election for 2027. The IRS labels the Section 25F credit the Federal Scholarship Tax Credit; this site uses Federal Scholarship Tax Credit for the same credit.
View document →IRS News Release IR-2026-76: More Than Half the States Elect to Participate in the Federal Scholarship Tax Credit (Section 25F)
On June 8, 2026, the IRS announced in news release IR-2026-76 that 27 states had elected to participate in the new federal scholarship tax credit under Internal Revenue Code Section 25F, the credit the IRS calls the Federal Scholarship Tax Credit. The release explains that a taxpayer may claim the credit of up to $1,700 only by contributing to a Scholarship Granting Organization located in a state that has both elected to participate and submitted its list of qualified organizations, that state participation is voluntary, and that more states are expected to join.
View document →Treasury
Proposed Regulations: Federal Scholarship Tax Credit
Treasury and the IRS proposed regulations for the whole Section 25F program. They cover how the credit is computed (up to $1,700 per taxpayer, with spouses filing jointly treated as separate taxpayers), what a scholarship granting organization must do to qualify, including the 90 percent spending test and an 85 percent safe harbor, how household income is verified, annual audits, and how states elect and submit their SGO lists. Taxpayers, SGOs and States may rely on the proposed regulations for qualified contributions made on or after January 1, 2027. Written comments are due December 1, 2026, and a public hearing is scheduled for December 15, 2026. Temporary regulations published the same day (TD 10057) carry the state election, SGO list and SGO reporting rules.
View document →Preview of Forthcoming Section 25F Guidance
On June 10, 2026, the U.S. Treasury released a preview of the regulatory framework it expects to propose for the new Section 25F Federal Scholarship Tax Credit, drawn from remarks a Treasury tax policy official delivered on June 9, 2026. The document describes how Treasury intends to administer the credit for contributions to scholarship granting organizations, including a possible safe harbor for measuring whether an organization spends at least 90% of the income of the organization on scholarships for eligible K-12 students, a definition of "school" consistent with section 530, and rules for organizations operating across states. It signals that proposed (not final) regulations are expected by the end of September 2026, and that states, SGOs, and taxpayers will be able to rely on those proposed rules for tax year 2027.
View document →Treasury Previews Education Freedom Tax Credit Guidance
On June 10, 2026, the U.S. Department of the Treasury announced that it had previewed forthcoming Treasury and IRS guidance for the new Federal Scholarship Tax Credit under Internal Revenue Code Section 25F, which the release says is on track to launch in January 2027. Treasury stated that it expects to issue proposed regulations by the end of September, and that states, scholarship granting organizations, and taxpayers are expected to be able to rely on those proposed regulations for tax year 2027. The preview was delivered during a roundtable with scholarship granting organizations, education stakeholders, technology providers, and state representatives, where a Treasury official outlined several key issues the forthcoming guidance is expected to address.
View document →Coming soon
IRS Donor Claim Form and Instructions for the Federal Scholarship Tax Credit (Form 8525)
The proposed regulations name the donor's form: Form 8525 (or successor form), on which a donor reports the unique donor number each SGO provides. The IRS has not yet released the form.
