Sources checked October 19, 2026. Editorial policy review is pending. The October proposed regulations are not final; reliance for 2027 contributions requires following them in full and consistently. T.D. 10057 has a December 1, 2026 effective date and September 1, 2026 applicability provisions. Check current IRS guidance before acting.
Key takeaways
- The EFTC (ECCA / §25F) doesn’t pay schools directly, it gives donors a federal credit for giving to an SGO, which awards scholarships your families can use for tuition and other qualified expenses.
- Your school is a destination for scholarship dollars, not a credit claimant and, in practice, not an SGO.
- Under Treasury’s proposed regulations (October 2026), the SGO pays tuition, fees, and room and board directly to your school, and your school must return any overpayment.
- Families qualify if their household income is at or below 300% of area median gross income.
- It only works in states that have opted in, a scholarship follows where the student lives, and the program launches January 1, 2027.
- Schools can prepare by choosing to partner early with one or more SGOs and help eligible families apply.
How EFTC dollars reach a school
The Education Freedom Tax Credit, also called ECCA, the Federal Scholarship Tax Credit, and IRC §25F, is built around donors and Scholarship Granting Organizations. The path to your classroom looks like this:
- A donor gives cash to an SGO and claims a federal tax credit (up to $1,700 per taxpayer; under Treasury’s proposed regulations, a married couple filing jointly can claim up to $3,400 when each spouse gives).
- The SGO deposits those gifts in a separate §25F account and awards scholarships to income-eligible K-12 students under federal priority rules.
- A family applies to the SGO, is verified, and receives a scholarship.
- For tuition, fees, room and board, and similar charges billed by the school, the SGO pays directly to the school on the student’s behalf. Treasury’s proposed regulations require that, and they bar SGOs from paying families except to reimburse a receipted, qualified expense.
Qualified expenses follow the §530(b)(3)(A) list: tuition, fees, academic tutoring, books, supplies, and more, at a public, private, or religious school. That is why private-school tuition is squarely covered. Treasury has said it will issue separate guidance under §530 on the expense list and on what counts as a “school” (the statute says a K-12 school “as determined under State law”); that guidance had not been issued as of October 1, 2026.
Direct payment comes with one obligation for your school: under the proposed regulations, the school must return any SGO payment that exceeds the student’s costs or that the SGO sent in error. The SGO, for its part, must run fraud controls that include systems to catch two awards paying the same expense beyond its cost. More on the payment rules: four ways an SGO can pay.
School and SGO responsibilities
Schools and SGOs have different responsibilities. Your school does not claim the credit and, in practice, cannot be its own SGO. An SGO must be a 501(c)(3) public charity (not a private foundation), must fund 10 or more students who don’t all attend the same school, must spend at least 90% of its income on scholarships, and cannot earmark gifts for specific students. A school funding only its own students fails the multi-school requirement. The spending test is just as hard: Treasury’s proposed regulations generally apply the spending test to all gross receipts of a single-state SGO. A single-state organization with at least 85% scholarship-granting activity may use the operational safe harbor for its §25F account. A school primarily providing instruction would ordinarily not meet that activity threshold. For a school, that would mean spending 90% of everything it takes in, tuition included, on scholarships. A multistate SGO must meet the 85% scholarship-activity requirement, maintain a separate §25F account for each covered state, and satisfy the operational requirements separately for each account.
The practical move for most schools is to partner with one or more established SGOs that serve your area or your sector (for example, a faith-based or special-needs network). If you do want to explore launching an affiliated SGO, it has to be a separate organization that serves students at more than one school. A new organization aiming for a state’s 2027 list should be formed, with its exemption application filed on time, by January 1, 2027. Review the exemption, governance, multischool-service and state-listing requirements with qualified advisers.
What your families need to qualify
- Income at or below 300% AMGI. Based on household income for the calendar year before the application, measured against the area’s median gross income adjusted for family size (Treasury’s proposed regulations use HUD’s Section 8 method, and the IRS will publish the figures annually). The SGO verifies this with documents such as pay stubs, tax returns, or IRS transcripts, or with an award letter from the last 12 months showing a household member gets SNAP, TANF, WIC, Section 8 housing, or SSI. Under the proposal, eligible foster children automatically satisfy the household-income test without income verification; other eligibility requirements and the SGO’s award process still apply. School-wide free or reduced-price lunch status does not count. See scholarship eligibility.
- Eligibility to enroll in a public K-12 school. The statute’s second test. A student does not have to be enrolled anywhere yet when applying.
- An SGO listed by the state where the student lives. Under the proposed regulations, a scholarship follows the student’s residence, not the school’s location. A student who lives in a participating state can use a scholarship from an SGO listed by that state at your school, even across a state line. Students who commute in from another state need an SGO listed by their own state, and that state must be participating; an SGO listed only in your state cannot fund them. (Dependents of service members and of families living on Indian lands have exceptions.) Review the student-residence requirements. Families apply to the SGO, not to your school, for the scholarship itself.
How to prepare your school
- Confirm your state is participating. Use the IRS state-participation roster, for your own state and for the states your families live in. Student residence generally determines the required participating-state listing; check the proposed residence exceptions before ruling out a family.
- Identify SGO partners. Find SGOs serving your region or mission in participating states’ SGO lists and understand their application calendars and award criteria. States that elect in for 2027 must submit their SGO lists by February 15, 2027, and the IRS will publish an SGO list on irs.gov organized by state.
- Map your eligible families. Many families don’t realize 300% of AMGI reaches well into the middle class; Treasury estimates about 95% of American children live in households under the limit. Help them understand they may qualify.
- Align billing and enrollment. Be ready to receive scholarship payments directly from the SGO for tuition, fees, and room and board, to refund any overpayment or payment sent in error, and to coordinate verification documents with the SGO.
- Brief your development office. It can encourage parents, alumni, and supporters to give to an SGO and claim the credit (up to $1,700 per taxpayer, or, under the proposed regulations, up to $3,400 for a married couple filing jointly when each spouse makes and designates a gift), and donors may give to an SGO in any participating state. But an SGO cannot earmark a gift for a particular student, and the proposed regulations do not separately address gifts aimed at a particular school. A school parent who gives an SGO more than $5,000 in a year, if that is more than 2% of the SGO’s contributions, becomes a substantial contributor (a spouse’s gifts count together), and that parent’s children generally cannot receive the SGO’s scholarships that year or the next.
- Communicate the timeline. Donations count from January 1, 2027; families should be in an SGO’s pipeline before then. See the EFTC timeline.
For SGO operators, clear donor records, eligibility verification, independent award decisions and documented disbursements are practical priorities. Confirm the organization’s processes and software capabilities directly.
A note for faith-based schools
Because §25F runs through private charitable donations rather than state appropriations, it has generally been framed as reaching religious schools the way any charitable giving does, and the expense list it borrows from §530 covers costs at a “public, private, or religious school.” Some states have debated additional conditions (such as nondiscrimination provisions) on SGOs operating within their borders. Treasury’s temporary regulations, with a December 1, 2026 effective date and September 1, 2026 applicability provisions, limit what a participating state can do: it “may not require SGOs to operate in a manner that is more restrictive than” §25F, “such as by limiting the type of school that scholarship recipients may attend.” Treasury said the bar responds to concerns about “arbitrary determinations and improper discrimination.” A state must still require SGOs to follow its general charity laws, and it must require application, documentation, and financial-reporting requirements reasonably tailored to the federal tests and fraud prevention. Whether a state participates at all is still its own decision, made one year at a time. Read one national standard for SGOs and EFTC vs. state tax credits for how the layers interact.
Frequently asked questions
Do private schools claim the EFTC credit?
No. The §25F credit is claimed by individual donors who give cash to a Scholarship Granting Organization (SGO). Schools receive scholarship payments on behalf of students; they don't claim the credit themselves. Under Treasury's proposed regulations (October 2026), the SGO must pay tuition, fees, room and board, and similar charges billed by the school directly to the school, and the school must return any payment that exceeds the student's costs or was sent in error.
Can a school start its own SGO?
A school cannot, in practice, be the SGO itself. An SGO must fund at least 10 students who don't all attend the same school, so a school funding its own students fails that test. Under Treasury's proposed regulations, a single-state SGO generally applies the 90% spending test to all gross receipts. A single-state organization with at least 85% scholarship-granting activity may use the operational safe harbor for its §25F account. A school primarily providing instruction would ordinarily not meet that threshold. A school can help form a separate 501(c)(3) SGO that serves students at many schools, but it cannot earmark donations for particular students, and school leaders who sit on its board or help select recipients become disqualified persons whose family members cannot receive its scholarships. Many schools instead partner with existing multi-school SGOs. A multistate SGO must meet the 85% scholarship-activity requirement, maintain a separate §25F account for each covered state, and satisfy the operational requirements separately for each account.
Which families at my school qualify?
Students who are eligible to enroll in a public elementary or secondary school and live in a household with income, for the calendar year before the application, at or below 300% of area median gross income. Treasury's proposed regulations compute that limit with HUD's Section 8 method, adjusted for family size, and the IRS will publish the figures annually. The SGO verifies income with documents such as tax returns or pay stubs, or with a recent award letter showing a household member gets SNAP, TANF, WIC, Section 8 housing, or SSI; eligible foster children automatically satisfy the household-income test without income verification; other eligibility requirements and the SGO’s award process still apply. The scholarship covers qualified education expenses including tuition.
Does my state have to opt in for my school to benefit?
Yes, and the state that matters is the one where the student lives. Under the proposed rules, scholarships generally serve students who reside in a covered State, one that has elected to participate for that year and submitted its list of qualifying SGOs to the IRS. A student who lives in a participating state can use a scholarship from an SGO listed by that state at a school in another state, but a student who commutes from a non-participating state generally cannot receive one from an SGO listed only in yours. The proposal has narrow exceptions for qualifying Armed Forces dependents and dependents of individuals residing on Indian Lands; see the eligibility guide before ruling out a family. Check your state's status before building plans around the program.
Can our development office ask donors to fund a particular student?
No. Your school can encourage parents, alumni, and other supporters to give to an SGO and claim the credit (up to $1,700 per taxpayer, or, under Treasury's proposed regulations, up to $3,400 for a married couple filing jointly when each spouse gives), but an SGO may not earmark or set aside contributions for any particular student. Also note that a donor who gives an SGO more than $5,000 in a year, if that is more than 2% of the SGO's total contributions, becomes a substantial contributor (a spouse's gifts count together), and that donor's children and other family members generally cannot receive that SGO's scholarships for that year or the next.
Sources and guidance
Sources checked October 19, 2026. Proposed rules and projections are identified in the article. Consult the latest official guidance before acting.
