By Shana Francis, CPA, Tax Senior Manager
New tax credit provides an incentive for individuals supporting K-12 education
Beginning in 2027, taxpayers will have a new opportunity to receive a federal tax credit for certain contributions supporting K-12 education. The Federal Scholarship Tax Credit (FSTC) provides eligible individuals with a credit of up to $1,700 per year for qualifying cash contributions to scholarship-granting organizations.
For taxpayers interested in supporting educational causes, the new credit may provide an additional tax planning opportunity.
How does the Federal Scholarship Tax Credit work?
The credit is available to U.S. citizens and residents who make qualified cash contributions to an eligible Scholarship-Granting Organization (SGO). Contributions of property or other non-cash assets do not qualify.
Taxpayers cannot claim both the FSTC and a federal charitable contribution deduction for the same contribution. The federal credit is also reduced by any state tax credit received for the contribution.
The credit is non-refundable, but unused amounts may generally be carried forward for up to five tax years.
What organizations and scholarships qualify?
Eligible SGOs must be tax-exempt 501(c)(3) organizations that meet specific federal requirements and are included on a participating state’s list of approved organizations.
Scholarships provided by these organizations can cover qualified K-12 education expenses, including tuition and fees, tutoring, books and supplies, special-needs services, uniforms, transportation, extended-day programs, and certain technology expenses.
Eligible students must generally come from households with prior-year income that does not exceed 300% of the area’s median gross income and must be eligible to enroll in a public elementary or secondary school.
Which states are participating?
States must elect to participate in the program and provide the IRS with a list of eligible SGOs. Virginia and North Carolina are among the 30 states that have elected to participate beginning in 2027.
Taxpayers do not necessarily have to live in a participating state to claim the credit. However, the SGO must be listed by a participating state and provide scholarships to eligible students within that state.
Planning for 2027
The FSTC creates a new consideration for taxpayers interested in supporting K-12 education. Individuals should consider how the credit interacts with charitable contribution deductions, state tax incentives, and their overall tax situation when planning their giving.
Additional guidance may be issued as states and scholarship organizations prepare for the program’s 2027 launch.
If you have questions about the Federal Scholarship Tax Credit or how it may fit into your tax planning, contact your Keiter Opportunity Advisor.
About the Author
Shana Francis, CPA, Tax Senior Manager
Shana has over 15 years of experience in public accounting, specializing in providing tax compliance and consulting services to high-net-worth individuals, including corporate executives and entrepreneurs. Her areas of expertise include income, gift, and trust and estate compliance and planning services. She is a member of the Firm’s Private Client Services team.
More Insights from Shana FrancisThe information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.
