Scholarship Granting Organization Information
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In 2025 a new tax credit was added to US tax law which becomes effective in the tax year beginning 1/1/2027. The formal name is 26 U.S. Code § 25F – Qualified elementary and secondary education scholarships. The law may be found at 26 U.S. Code § 25F - Qualified elementary and secondary education scholarships | U.S. Code | US Law | LII / Legal Information Institute.
This section creates a new income tax credit-not a charitable deduction- by which a taxpayer can reduce their payment of income tax to the IRS by up to $1,700. Individuals do this by making a donation up to a maximum of $1,700 per year to a new type of charity created by the law – a Scholarship Granting Organization-SGO for short. The SGO uses the donations it receives to make scholarship payments to a K-12 education opportunity provider on behalf of a particular student in one of the 50 states and the District of Columbia.
But the program is only available to a child if a governor has chosen to have the program available in the state the child resides for the benefit of the state’s children. But the educational program used by the child could be conducted virtually (distance learning) or in any state.
The scholarship may fund only qualifying “education expenses” but that is broadly defined.
The child’s parents must formally apply to the SGO and choose a particular education opportunity from among the one or more qualified education opportunity programs for which the SGO offers scholarships. The parent can apply for more than one scholarship. It is expected that a given SGO will have multiple scholarships available in its “catalog” for a donor to choose among. The SGO applies a selection process to match donor money to the specific education provider opportunity selected by the parents and then pays out the awarded amount to the provider.
The tax credit donor chooses the program to be supported but cannot “earmark” the donation to the benefit of a particular child.
In sum, a taxpayer must make a choice each tax year. Do I prefer to send $1,700 to the SGO of my choice, to fund scholarships of the type I choose, or do I do nothing and pay the IRS. What would you choose to do? Congress thinks many taxpayers will choose to directly benefit a child.
