IRS Proposes Tax Breaks for K-12 Scholarship Donors
Published Date: 10/2/2026
Proposed Rule
Summary
The IRS is proposing new rules for a tax credit that rewards people who donate to groups giving scholarships for K-12 education. This affects donors, states that approve these groups, and the groups themselves. Comments are open until December 1, 2026, with a public hearing on December 15, so get ready to share your thoughts and maybe save some money on your taxes!
Analyzed Economic Effects
6 provisions identified: 2 benefits, 2 costs, 2 mixed.
Federal scholarship tax credit limit
You can get a nonrefundable Federal tax credit equal to the amount you donate to a certified scholarship granting organization, but the Federal credit for any individual taxpayer is capped at $1,700 per taxable year. The credit is nonrefundable, is reduced by any State credit you claim for the same contribution, and any unused Federal credit can be carried forward for up to five years.
Who may claim the credit
Only individual U.S. citizens or residents may claim the section 25F credit for qualified contributions. Contributions made by a partnership or S corporation are not treated as qualified contributions for the partners or S corporation shareholders, and married spouses filing jointly may each claim up to $1,700 (so a married couple could claim up to $3,400 if both spouses make qualifying contributions).
SGO eligibility and operational rules
To be certified as a scholarship granting organization (SGO), an organization must be a 501(c)(3) public charity (not a private foundation), deposit qualified contributions into a segregated section 25F account, provide scholarships to at least 10 students who do not all attend the same school, and spend not less than 90 percent of its income on scholarships for eligible students. SGOs must verify household income against an area median gross income test, may not earmark funds for specific students, must not award scholarships to disqualified persons, and must be included on their covered State's SGO list (States must submit lists by January 1 each year, or as early as practicable for 2027).
What counts as a 'qualified contribution'
A qualified contribution must be a cash charitable contribution designated by the donor at the time of giving and deposited into the SGO's segregated section 25F account. "Cash" includes currency, check, money order, electronic transfer (including credit or debit card), and after-tax payroll deduction in U.S. dollars, but does not include digital assets; once designated as qualified, the designation cannot be revoked.
Documentation and filing to claim credit
SGOs must provide each donor a unique donor number as part of a written acknowledgement no later than January 31 following the calendar year of the contribution, and taxpayers must report that unique donor number on Form 8525 to substantiate a section 25F credit. If you fail to report the required donor number on Form 8525, the IRS will presume you did not make a qualified contribution unless you can rebut that presumption with the SGO acknowledgement or other satisfactory evidence.
Digital wallet allowed to verify scholarships
The proposed rules allow SGOs to use a "qualified digital wallet" — a third-party electronic payment platform — to verify that scholarships are spent on qualified elementary or secondary education expenses by tracking purchase requests, approving vendors, and paying vendors directly or requiring receipts. The Treasury and IRS request comments on this definition and whether additional safe harbors for verification should be included.
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