SEC. 70411. Tax Credit for Contributions of Individuals to – Federal Scholarship Tax Credit Coalition

Public Law 119 – §70411 IRC §25F 139 STAT. 216–218

SEC. 70411. Tax Credit for Contributions of Individuals to Scholarship Granting Organizations

Federal Scholarship Tax Credit — Statutory Text

$1,700

Max annual credit per taxpayer

100%

Dollar-for-dollar federal tax credit

90%

Min. SGO income spent on scholarships

5 yrs

Credit carryforward period

Part (a) — New IRC §25F: Qualified Elementary and Secondary Education Scholarships

§25F(a) — Allowance of Credit

In the case of an individual who is a citizen or resident of the United States (within the meaning of §7701(a)(9)), there shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the aggregate amount of qualified contributions made by the taxpayer during the taxable year.

§25F(b) — Limitations

Annual Cap The credit allowed to any taxpayer for any taxable year shall not exceed $1,700.

State Credit Reduction The amount allowed as a credit shall be reduced by the amount allowed as a credit on any State tax return of the taxpayer for qualified contributions made during the taxable year.

§25F(c) — Definitions

Covered State One of the States, or the District of Columbia, that for a calendar year voluntarily elects to participate under this section and to identify scholarship granting organizations in the State, in accordance with subsection (g).

Eligible Student An individual who (A) is a member of a household with income not greater than 300% of the area median gross income (as used in §42) for the calendar year prior to the scholarship application date, and (B) is eligible to enroll in a public elementary or secondary school.

Qualified Contribution A charitable contribution of cash to a scholarship granting organization that uses the contribution to fund scholarships for eligible students solely within the State in which the organization is listed pursuant to subsection (g).

Qualified Elementary or Secondary Education Expense Any expense of an eligible student described in §530(b)(3)(A) (Coverdell ESA allowable expenses).

Scholarship Granting Organization (SGO) Any organization that: (A) is §501(c)(3) tax-exempt and is not a private foundation; (B) prevents co-mingling of qualified contributions by maintaining separate accounts exclusively for such contributions; (C) satisfies the requirements of subsection (d); and (D) is included on the applicable covered State’s list submitted under subsection (g).

§25F(d) — Requirements for Scholarship Granting Organizations

An organization meets the requirements of this subsection if it satisfies all of the following:

(A) Provides scholarships to 10 or more students who do not all attend the same school.

(B) Spends not less than 90% of its income on scholarships for eligible students.

(D) Provides scholarships with priority for: (i) students awarded a scholarship the previous school year; then (ii) eligible students who have a sibling who was previously awarded a scholarship from the organization.

(E) Does not earmark or set aside contributions for scholarships on behalf of any particular student.

(F) (i) Verifies the annual household income and family size of eligible student applicants to ensure compliance with subsection (c)(2)(A); and (ii) limits scholarship awards to students from households not exceeding that income threshold.

Prohibition on Self-Dealing

An SGO may not award a scholarship to any disqualified person. “Disqualified person” is determined pursuant to rules similar to §4946.

§25F(e) — Denial of Double Benefit

Any qualified contribution for which a credit is allowed under this section shall not be taken into account as a charitable contribution under §170.

§25F(f) — Carryforward of Unused Credit

If the credit allowable for any taxable year exceeds the limitation under §26(a) (reduced by other applicable credits), the excess shall be carried forward to the succeeding taxable year and added to the credit allowable for that year. No credit may be carried forward beyond the fifth taxable year after the year in which the credit arose. Credits are treated as used on a first-in, first-out basis.

§25F(g) — State List of Scholarship Granting Organizations

Annual Submission Deadline Not later than January 1 of each calendar year (or, for the first applicable year, as early as practicable), a participating State shall provide the Secretary with a list of qualifying SGOs located in the State.

Who May Submit The election to participate is made by the Governor of the State, or such other individual, agency, or entity as is designated under State law to make such elections on behalf of the State with respect to federal tax benefits.

Certification Required Each list submitted under paragraph (1) shall include a certification that the submitting individual, agency, or entity has the authority to perform this function.

§25F(h) — Regulations and Guidance

The Secretary shall issue such regulations or other guidance as necessary to carry out the purposes of this section, including guidance providing for enforcement of the requirements under subsections (d) and (g), and with respect to recordkeeping and information reporting.

Part (b) — New IRC §139K: Exclusion from Gross Income 26 USC 139K

Gross income shall not include any amounts provided to an individual (or any dependent of such individual) pursuant to a scholarship for qualified elementary or secondary education expenses of an eligible student which is provided by a scholarship granting organization.

The terms “qualified elementary or secondary education expense,” “eligible student,” and “scholarship granting organization” have the same meaning given under §25F(c).

Part (a)(2) — Conforming Amendments

(A) §25(e)(1)(C) is amended by inserting “25F” after “25D.”

(B) The table of sections for Subpart A of Part IV of Subchapter A of Chapter 1 26 USC prec. 21 is amended by inserting after the item relating to §25E:

“Sec. 25F. Qualified elementary and secondary education scholarships.”

(Part b conforming) The table of sections for Part III of Subchapter B of Chapter 1 26 USC prec. 101 is amended by inserting before the item relating to §140:

“Sec. 139K. Scholarships for qualified elementary or secondary education expenses of eligible students.”

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Effective Date 26 USC 25 note Tax credit (§25F): Applies to taxable years ending after December 31, 2026
Income exclusion (§139K): Applies to amounts received after December 31, 2026