§25F Qualified elementary and secondary education scholarships

Summary

You can get a federal tax credit up to $1,700 for the year when you give cash to certain scholarship groups that pay K–12 school costs for low- and middle-income students. The credit is lowered by any state tax credit you already get for the same gift. If your credit is too big for the year, the extra can be carried forward to later years, but not past the fifth year after the year it started (credits are used first in, first out). Only states (or DC) that opt in and give a yearly list of approved scholarship groups can use this credit. An eligible student is someone who could attend a public K–12 school and whose household income is no more than 300 percent of the area median income. A qualified contribution is cash given to an approved scholarship group that uses it only for scholarships inside that state. Approved groups must be public charities (not private foundations), keep scholarship money separate, give scholarships to at least 10 students at different schools, spend at least 90% of their income on scholarships, only pay allowed K–12 expenses, give priority to returning scholars and then siblings, not set aside money for specific kids, verify family income, and follow rules that bar scholarships to certain disqualified people (under rules like section 4946). You may not also claim the same gift as a charitable deduction. The IRS will write rules to enforce these rules and set recordkeeping and reporting requirements.