Federal scholarship tax credit (2027): a guide for providers

This is the provider's view: where the money comes from, which states are in, and which of your services the law lets a scholarship pay for. It's built from the statute and the IRS's own page, and it isn't tax advice.

How the credit works

Starting January 1, 2027, individual taxpayers can claim a federal tax credit of up to $1,700 a year for cash contributions to Scholarship Granting Organizations (SGOs).1
The credit is reduced by any state tax credit the taxpayer claims for the same contributions.2
A contribution that earns the credit can't also be deducted as a charitable contribution.3
Unused credit carries forward for up to five years.4
A state only takes part if it elects to: the Governor (or whoever state law designates) gives the IRS a list of qualifying SGOs located in the state, by January 1 of each year. Contributions must fund scholarships solely within the state where the SGO is listed.4
Scholarships the students receive from an SGO for qualified expenses are excluded from the family's gross income, for amounts received after December 31, 2026.5

Donor gives cash to an SGO

Donor claims up to $1,700 credit

SGO awards scholarships

Scholarships pay for qualified expenses, including yours

Which states are in

30 states had made an advance election to participate as of September 14, 2026, according to the IRS (page updated Sep 16, 2026).1 18 of them also run an ESA or scholarship program with a ChoicePaid guide, so providers there can be paid from both.

Not on the list yet: Arizona, California, Connecticut, Delaware, District of Columbia, Hawaii, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, New Mexico, New York, Oregon, Pennsylvania, Rhode Island, Vermont, Washington, Wisconsin. The IRS updates the list as states elect; ChoicePaid checks the page every day.

What scholarships can pay for

Qualified expenses are the ones defined in 26 U.S.C. 530(b)(3)(A). The first group: tuition, fees, academic tutoring, special needs services for a special needs student, books, supplies and other equipment, incurred in connection with the student's enrollment or attendance at a public, private or religious elementary or secondary school.6
Second: room and board, uniforms, transportation, and supplementary items and services (including extended day programs) that the school requires or provides in connection with enrollment or attendance.6
Third: computer technology or equipment, internet access and related services used by the student and family during the school years. Software for sports, games or hobbies doesn't count unless it's mainly educational.6
"School" means any school providing elementary or secondary education (kindergarten through grade 12), as determined under state law.6

Where each kind of provider falls in the list (our plain reading of 26 U.S.C. 530(b)(3)(A)6)
Provider	In the statute	Clause
Private and religious schools	Tuition and fees are named.	(i)
Tutors	Academic tutoring is named.Tied to the student's enrollment or attendance at a school.	(i)
Therapists and special needs services	Special needs services are named, for a special needs student.	(i)
Curriculum, books and supply sellers	Books, supplies and other equipment are named.	(i)
Computer and internet providers	Computer technology, equipment and internet access are named.Games and hobby software excluded unless mainly educational.	(iii)
Uniforms, transportation, extended-day programs	Named when the school requires or provides them.	(ii)
Enrichment (music, art, sports lessons)	Not named in the list.Unless it's a school-required or school-provided service; ask the SGO.	-

Who the scholarships are for

An eligible student is one who can enroll in a public elementary or secondary school and whose household income for the prior year is no more than 300 percent of the area median gross income. The SGO verifies household income and family size.2

What an SGO must do

An SGO must be a 501(c)(3) public charity (not a private foundation) that keeps contributions in separate accounts and is on its state's list.3
It must give scholarships to 10 or more students who don't all attend the same school, spend at least 90 percent of its income on scholarships, and pay for nothing other than qualified elementary or secondary education expenses.3
It can't earmark contributions for a particular student. It gives priority to last year's recipients, then to their siblings, and can't award scholarships to disqualified persons (rules like those for private foundations' insiders).3

Getting ready as a provider

Our suggestions, not rules from the law:

Check your state above. If it isn't in yet, families there can't use these scholarships in 2027.
Find the SGOs in your state once its list goes to the IRS (due January 1 each year), and ask each one how it pays providers: directly, or by reimbursing families.
Match your services to the expense list. Describe them the way the statute does (academic tutoring, special needs services, books and supplies) on invoices and your website.
Keep itemized, per-student records of dates, services and amounts. SGOs must verify that scholarships pay only for qualified expenses, so expect to be asked.
Get approved for your state's ESA too. In 18 of the opted-in states, the same families may also hold ESA funds. Plan every application at once.

Hear when your state joins

We check the IRS list every day. Get an email when it changes, along with rule changes in your ESA program.

Get rule-change alerts

Questions

When does the federal scholarship tax credit start?

January 1, 2027. The credit applies to taxable years ending after December 31, 2026, and the IRS says individual taxpayers may claim it for qualifying contributions starting January 1, 2027.

How much is the credit?

Up to $1,700 per taxpayer per year, reduced by any state tax credit claimed for the same contribution. Unused credit carries forward up to five years.

Does my state participate?

30 states were on the IRS list of advance elections as of September 14, 2026. A state takes part only if its Governor (or the official state law designates) elects to and gives the IRS a list of qualifying scholarship granting organizations.

Can a scholarship pay a tutor or therapist?

The statute's expense list names academic tutoring and, for a special needs student, special needs services, tied to the student's enrollment or attendance at an elementary or secondary school. How each scholarship granting organization pays providers isn't set by the statute, so ask the SGOs in your state.

Which families qualify for these scholarships?

Students who can enroll in a public elementary or secondary school and whose household income is no more than 300 percent of the area median gross income. The scholarship granting organization verifies income and family size.

Sources

1. Federal Scholarship Tax Credit (FSTC), Internal Revenue Service, updated Sep 16, 2026
2. Public Law 119-21, sec. 70411 (26 U.S.C. 25F and 139K), Library of Congress (enrolled law), p. 145, updated Jul 4, 2025
3. Public Law 119-21, sec. 70411 (26 U.S.C. 25F and 139K), Library of Congress (enrolled law), p. 146, updated Jul 4, 2025
4. Public Law 119-21, sec. 70411 (26 U.S.C. 25F and 139K), Library of Congress (enrolled law), p. 147, updated Jul 4, 2025
5. Public Law 119-21, sec. 70411 (26 U.S.C. 25F and 139K), Library of Congress (enrolled law), p. 148, updated Jul 4, 2025
6. 26 U.S.C. 530(b)(3): qualified elementary and secondary education expenses, U.S. Government Publishing Office (govinfo), updated Oct 10, 2026