By Aliss Higham
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More than half of U.S. states have opted in to a new federal school scholarship tax credit program, opening the door for residents to receive tax credits for donations that fund education scholarships.
The Internal Revenue Service announced on Monday that 27 states have elected to participate in the Federal Scholarship Tax Credit (FSTC) program, which was created under President Donald Trump's One, Big, Beautiful Bill Act. Under the program, eligible taxpayers will be able to claim a federal tax credit of up to $1,700 for qualifying donations to Scholarship Granting Organizations (SGOs), which provide scholarships for elementary and secondary education expenses.
"It’s encouraging to see that 27 states have already signed up to participate in this program that promotes and supports elementary and secondary education," IRS CEO Frank J. Bisignano said in a statement. "We are hopeful that additional states will decide to participate."
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Which States Have Opted In?
According to the IRS, the following states have formally elected to participate:
- Alabama
- Alaska
- Arkansas
- Colorado
- Florida
- Georgia
- Idaho
- Indiana
- Iowa
- Louisiana
- Mississippi
- Missouri
- Montana
- Nebraska
- Nevada
- New Hampshire
- North Dakota
- Ohio
- Oklahoma
- South Carolina
- South Dakota
- Tennessee
- Texas
- Utah
- Virginia
- West Virginia
- Wyoming
That leaves 23 states that have not yet joined the program:
- Arizona
- California
- Connecticut
- Delaware
- Hawaii
- Illinois
- Kansas
- Kentucky
- Maine
- Maryland
- Massachusetts
- Michigan
- Minnesota
- New Jersey
- New Mexico
- New York
- North Carolina
- Oregon
- Pennsylvania
- Rhode Island
- Vermont
- Washington
- Wisconsin
How FSTC Works
The FSTC program, also known as the Educational Choice for Children Act (ECCA), allows individuals to make donations to approved scholarship organizations and receive a dollar-for-dollar federal income tax credit worth up to $1,700.
The scholarships can be used by families earning up to 300 percent of their area's median gross income to help pay for private school tuition, tutoring or other qualifying educational services.
"For some families, this could mean using scholarships to pay for private school tuition at a school they choose," the Education Department said in a fact sheet regarding the program. "Other students will benefit from buying the equipment or uniforms needed for a career training program at a secondary school. Other families may seek a scholarship for tutoring or for after- school enrichment programs. The options are expected to vary in line with students’ unique academic needs, the focus of a particular SGO, and the educational opportunities available to students."
For scholarships to be available in a participating state, the governor or another designated state authority must submit a list of qualifying SGOs to the U.S. Treasury by January 1 each year.
Although states are currently opting in to the program, donations eligible for the tax credit will not begin until January 1, 2027. Taxpayers who contribute during 2027 would receive the credit when filing their federal tax returns in 2028.
The credit is nonrefundable, meaning it can reduce a taxpayer's federal tax liability but does not generate a refund if the credit exceeds taxes owed. Unused credits generally may be carried forward for up to five years.
What Happens in States That Don't Participate?
According to EFTC Credit, a group that is advocating for all states to join the program, taxpayers living in states that do not opt in can still receive the federal tax credit by donating to scholarship organizations in participating states. That means scholarship funding generated by those donations may flow to students elsewhere.
"When a state opts in, those federal dollars come back as scholarships for its families. When a state doesn't, donors in that state can still give—but the dollars go to students in other states instead of staying in your community," the organization said.
"The donations themselves come from private citizens, but the donor receives a dollar-for-dollar federal tax credit. So functionally, it's federal tax dollars that fund the scholarships—the donor is the conduit, and the cost is borne by the U.S. Treasury.
"Because ECCA is structured as a tax credit rather than direct federal spending on schools, it does not appropriate any new federal money for education. Instead, it lets taxpayers redirect what they would otherwise owe in federal income tax into a scholarship pool."
Republican States Lead Participation
Most of the states that have joined the program are Republican-led. Colorado, New York and Virginia have opted in with Democratic governors.
Jared Polis of Colorado has publicly supported participation, saying: "I think most, if not all, Democratic governors will get there as they learn about the chance to boost charitable contributions in their state.
"If there are states that don't, for some reason, people in those states can still give to charities in states like Colorado."
In Idaho, Republican Governor Brad Little said the program will expand educational choice for families.
"Idaho is proud to be the only state offering education freedom from kindergarten through career," he said in February. "My executive order strengthens our commitment to ensuring every parent has the opportunity to choose the education environment that best fits their child."
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