Beginning on January 1, 2027 a new tax credit, known as the Federal Scholarship Tax Credit (FSTC), will become available.  Note that the credit cannot be claimed on your 2026 return when you file in April/October 2027 as the credit is available for taxable years beginning on January 1, 2027. The following information is provided so that you can learn how you can take advantage of the credit on your 2027 tax return.

WHO CAN CLAIM THE CREDIT?

The credit is available only to individual US citizens and residents who make qualified contributions during the tax year. The credit is applied to the income tax liability shown on the 1040 return. Individuals may make contributions to qualifying organizations whether or not the taxpayer resides in the state where the organization is located.

HOW IS THE CREDIT CLAIMED?

When making the qualified contribution the taxpayer must inform the qualifying organization that the contribution is a qualified 25F contribution. This designation is irrevocable. The credit is claimed on IRS Form 8525 which is attached to the Form 1040. This form is not yet available.

The qualifying organization must provide the taxpayer/donor with an acknowledgement of the donation which must contain a unique donor number. The qualifying organization must provide this acknowledgement to the taxpayer by January 31 of the year following the donation.

WHAT IS A QUALIFIED CONTRIBUTION?

A qualified contribution is a charitable contribution of cash: (1) to a scholarship granting organization that (2) uses the contribution to fund scholarships for eligible students (3) who are solely within the state in which the organization is listed. The contribution cannot be in digital currency/assets. The contribution must be reduced by any goods or services received by the taxpayer in return for the contribution.

WHAT IS A SCHOLARSHIP GRANTING ORGANIZATION?

The cash contribution must be made to a scholarship granting organization which is defined as an organization that:

• Has tax exempt status from the Internal Revenue Service under IRC §501(c)(3) See: https://www.irs.gov/charities-non-profits/charitable-organizations/exemption-requirements-501c3-organizations
• Is not a private foundation
• Prevents the commingling of qualified contributions with other funds by maintaining separate account(s) exclusively for the qualified contributions
• Is included in the list submitted by the applicable covered state
• Provides scholarships to ten or more students who do not all attend the same school
• Spends more than 90% of its income on scholarships for eligible students
• Provides scholarships only for qualified elementary or secondary education expenses
• Prioritizes the award of scholarships to eligible students who were awarded a scholarship the previous year with the next priority being the siblings of an eligible student who received a scholarship from the organization
• Does not set aside contributions for scholarships to a particular student and
• Verifies that the annual household income and family size of the eligible students who apply for the scholarship do not exceed 300% of the area median gross income and limits the awarding of scholarships to eligible students from families meeting the income criteria. Note that the criteria are not based on the poverty line, but the median income. At this time the median income in Miami/Miami Beach is $89,800 meaning that a family earning $269,400 satisfies the income criteria for a child to be an eligible student. There are adjustments depending on family size. The number used is the general median income provided by HUD. https://www.huduser.gov/datasets/il/il2026/summary?year=2026&reporttype=county&states=12&counties=1208699999&hmfa=METRO10180M10180

WHO IS AN ELIGIBLE STUDENT?

An eligible student is one who is a member of a household that meets the family size and income criteria described above and who is eligible to enroll in a public elementary or secondary school. The student must be a resident of the state which lists the qualified scholarship organization and which awards the scholarship and not just be attending school in a state listing the organization. There are limited exceptions for children of military personnel and those residing on Tribal Lands.

WHAT ARE QUALIFIED ELEMENTARY AND SECONDARY EDUCATION EXPENSES?

The expenses covered by the scholarship include:

• Tuition, fees, academic tutoring, and special needs services in case where recipient has special needs
• Books, supplies, and other equipment incurred in connection with enrollment or attendance at the school
• Room and board
• Uniforms
• Transportation
• Supplementary items or services required or provided by the school in connection with enrollment or attendance. Extended day programs are not included.
• Computer technology or equipment, internet access or related services if these are to be used by the student or his/her family during the time the student is in school
• Computer software, peripheral equipment and fiber optic cable related to computer use is included so long as the software is not for sports, games or hobbies unless it is predominantly educational in nature.

WHAT IS A COVERED STATE?

In order to qualify as a covered state, the state (including the District of Columbia) in which the scholarship granting organization is located, must voluntarily elect by January 1 of each calendar year to participate in the program. If the state elects to participate, it must provide to the Secretary of the Treasury a list of each scholarship granting organization which meets the requirements set forth above. At this time, 26 states have elected to participate in the program. Florida has made the election. A complete list of electing states can be found at:  https://www.irs.gov/government-entities/federal-state-local-governments/federal-scholarship-tax-credit-fstc-participating-states

The scholarship granting organization must be authorized to do business in the state in order to be considered as being located in the state and it must be in compliance with all applicable state laws.

IS THE CREDIT LIMITED?

There is no limit to the amount of qualified contributions that a taxpayer may make during the tax year. However, the credit claimed on the return for the contributions cannot exceed $1,700 per year or $3,400 for those married filing jointly. The scholarship tax credit is reduced by any amount allowed as a credit on the taxpayer’s state tax return for the qualified contribution.

A qualified contribution that was used to claim the scholarship credit for a taxable year cannot also be used to claim a charitable contribution deduction. However, contributions to the scholarship organization in excess of the allowed yearly credit can qualify as a charitable contribution and qualify for a deduction.

IS THE CREDIT REFUNDABLE?

The credit is not refundable. Any portion of the credit that is not used in the year in which the contribution is made can be carried forward to the following year, if not deducted as a charitable contribution. Even if carried forward, the $1,700/$3,400 credit limitation applies.

If credits are carried forward to a year in which additional contributions have been made and which give rise to a credit, the credits are deemed used on a first-in first-out basis. In no event can credits be carried forward more than five years from the taxable year in which the credit first arose.

ADDITIONAL GUIDANCE

Some of the law’s provisions have been clarified in temporary and proposed regulations which are not yet final. Comments on the regulations may be submitted until December 1, 2026 at https://www.regulations.gov/document/IRS-2026-1354-0001. A hearing is currently scheduled for December 15, 2026