FSTC Readiness Guide for Public Schools

Public school students can get Federal Scholarship Tax Credit (FSTC) scholarships too. Here is what that means for a district, under the rules Treasury and the IRS released on Oct. 2, 2026.

The program in brief

Each rule below carries one of three tags.

Set The law, or the temporary rules now in force.
Proposed The proposed rules, which could change after public comment.
Waiting on guidance The rules leave it for later guidance, or do not address it.

Donors

Set Cash gifts to a scholarship granting organization (SGO), designated as FSTC gifts when they are made, earn a federal tax credit.
Proposed Up to $1,700 per taxpayer. Under the proposed regulations, spouses filing jointly are treated as separate taxpayers, so a couple can claim up to $3,400 if each spouse gives at least $1,700.
Set A state tax credit for the same gift reduces the federal credit.
Set Gifts go to an SGO, not to a school.
Waiting on guidance Whether a donor can direct a gift to a particular school is not addressed in the rules.

Students

Set A student must be eligible to attend a public school, so public and private school students can both qualify.
Set Household income may not exceed 300 percent of the area's median income.
Proposed That limit is adjusted for household size, as explained below.
Proposed A student must live in a state that has opted in. Where the student lives sets the area, with exceptions for military families and students on Indian lands.

SGOs

Set SGOs are charities on a state's list that spend at least 90 percent on scholarships.
Set No scholarship money may be earmarked for a particular student.
Proposed Tuition is paid directly to the school, which returns any overpayment.

States

Set States opt in one year at a time.
Set For 2027, the election is due by Jan. 1, 2027 and the SGO list by Feb. 15, 2027.

What scholarships pay for

Waiting on guidance The list of covered expenses waits on separate Treasury guidance.
Proposed Tutoring and special-needs services are named in the proposed rules.

Dates

Public comments are due Dec. 1, 2026. A public hearing is set for Dec. 15, 2026, if anyone asks to speak by the comment deadline.

How the income limit works

Proposed The limit is three times the area's median family income, scaled by household size. A household of four gets the full amount; smaller households get less and larger households more.

Household size and multiplier
People in the household	Multiplier
1	0.70
2	0.80
3	0.90
4	1.00
5	1.08
6	1.16
7	1.24
8	1.32
More than 8	1.32, plus 0.08 for each person over eight

Proposed Everyone living with the student counts, related or not, including several generations of a family.
Proposed In shared custody, the student belongs to the household where the student lives longest. If the time is equal, it is the household with the higher income.
Proposed Income means cash income from the calendar year before the application. Child support and alimony count; an imputed return on assets does not.

In their economic analysis of the proposed rules, Treasury and the IRS estimate that with these income rules, 96 percent of children in states that have elected to take part will be eligible for these scholarships.

Waiting on guidance The IRS has not yet published its official tables of limits by area and household size.
Waiting on guidance The IRS has not said whether those tables will follow HUD's adjusted published limits or the straight formula.
Waiting on guidance The rules do not say which year's table applies to an application.

Check your families with the income calculator. Its figures are estimates until the IRS publishes its tables.

The five steps

1. Check which of your students can qualify

Set A student must be eligible to attend a public school, so public school students can qualify.
Proposed Tutoring and special-needs services are named in the proposed rules.
Waiting on guidance The list of covered expenses waits on separate Treasury guidance.

2. Decide whether to back your state's opt-in

Set A state must elect to participate, one year at a time.
Set For 2027, the election is due by Jan. 1, 2027 and the SGO list by Feb. 15, 2027.
Proposed A student must live in a state that has opted in, so if your state does not opt in, your families cannot get these scholarships.

3. Pick the SGO you will work with

Set Scholarship granting organizations (SGOs) are charities on a state's list that spend at least 90 percent on scholarships. Donors give to an SGO, not to a school or district.
Proposed Under a safe harbor, a school in a low-income area can choose students by need for SGO-funded tutoring and special-needs services. Those students count as meeting the income limit.
Proposed Anyone who takes part in awarding scholarships for an SGO is a disqualified person.
Waiting on guidance The rules do not say whether school staff who select students under the safe harbor are covered by that rule.

4. Tell families how to apply

Set Families apply through an SGO, which awards the scholarships.
Proposed Families can show they meet the income limit with an award letter for SNAP, TANF, WIC, Section 8 or SSI. Children in foster care count as meeting it.

5. Plan for tutoring and special-needs demand

List the tutoring and special-needs services families pay for now, or would use if cost were not the barrier.
Proposed A school's obligations under the Individuals with Disabilities Education Act (IDEA) do not change.

Resources for districts

The District Tutoring Briefing A one-page summary, for your board, of what the credit could mean for tutoring in your district. Eligible Expenses What FSTC scholarships can pay for, showing which items the law names and which wait on Treasury guidance. State Status Map See which states have opted in and which are pending governor action. Income Calculator Estimate the income limit for a household of any size in your county. FSTC School Readiness Guide The companion guide for private schools, in six steps.

Nothing here is legal or tax advice. The rules, and any later guidance, control.