The Federal Scholarship Tax Credit was passed by Congress and signed by President Trump on July 4, 2025, as part of the Working Families Tax Cuts Act. Starting in 2027, the FSTC allows individual taxpayers to contribute to a nonprofit scholarship granting organization (SGO) and receive a dollar-for-dollar tax credit worth up to $1700. The SGO then pools the funds and distributes scholarships to eligible students for a wide range of K-12 educational expenses including private school tuition However, in order for SGOs to be approved, the state in which they are located must opt in to the tax credit and include them on a list sent to Treasury.
For Parents
Eligibility: 300% of Area Median Income
How: Apply to SGOs approved to operate in your state.
What: All expenses eligible for a Coverdell account (see FAQ)
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Maximum scholarship amount determined by SGO.
For Donors
What: 100% credit (not deduction) against individual income tax:
- up to $1700 per taxpayer annually
- non-refundable
- 5-year carryover
- can’t earmark to specific students
- can’t take a federal deduction for the same donation
When: Beginning in 2027. Annual deadline Dec. 31st.
Where: Donors in all 50 states and DC
To Whom: Approved SGOs
For Scholarship Granting Organizations (SGOs)
• 501c3 and not a private foundation
• Spend 90% of “income” on qualified scholarships
• No co-mingling of funds
• On annual list of SGOs submitted by state
• Serve 10+ students in more than one school
• Award scholarships for qualified expenses only
• Prioritize previous recipients followed by siblings
• No earmarking to specific students
• Verify income and household size
• May not award scholarships to a “disqualified person”
Frequently Asked Questions
The funds are generated by donors who receive a dollar-for-dollar federal tax credit for contributions to nonprofit scholarship organizations.
Scholarships will be available to residents of all 50 states and DC as long as the states opt in and provide a list of approved SGOs to Treasury each year.
Any expense allowed for Coverdell accounts including tuition, fees, academic tutoring, special needs services, books, supplies, room and board, uniforms, transportation, computer technology or equipment.
Once the provision takes effect in 2027, families will be able to apply directly to an approved scholarship organization in their state.
This scholarship tax credit will increase the funding available to scholarship students. Scholarships could potentially be awarded to students who would otherwise not have received a grant under a state’s eligibility guidelines, or it can mean higher scholarship amounts.
$1700 per taxpayer
Annual deadline Dec. 31st
A scholarship organization can choose to allow donors to earmark their contribution to a specific school or group of schools, but not to a specific child.
No, the tax credit is for donations to scholarship organizations, not tuition paid to schools. The donor receives a tax credit whether or not he or she has a child.
Coming soon.
You must earn 300% of the area median income or below as calculated by HUD.
Video Resources
Rabbi A.D Motzen Presenting on the FSTC at the EDS Conference
Rabbi Avi Schnall Presents on School Choice at the Torah Umesorah Conference 5786
Agudah Submits Comments to Treasury: What they said and why it matters
Materials
The Federal Scholarship Tax Credit FAQ
Summary of Federal Scholarship Tax Credit
