Question 1

What is the Education Freedom Tax Credit?

Accepted Answer

The Education Freedom Tax Credit is a federal income-tax credit created under Internal Revenue Code Section 25F. It is designed to encourage individuals to support K–12 education by making qualifying cash contributions to approved nonprofit Scholarship Granting Organizations.

Question 2

Is it the same as the Federal Scholarship Tax Credit?

Accepted Answer

Yes. The IRS may refer to the program as the Federal Scholarship Tax Credit, and Treasury materials may refer to it as the Education Freedom Tax Credit. Both names refer to the federal credit established under Section 25F.

Question 3

What does Section 25F mean?

Accepted Answer

Section 25F is the section of the Internal Revenue Code that establishes the credit, defines qualifying contributions, sets requirements for Scholarship Granting Organizations, and describes eligible students and qualified expenses.

Question 4

When does the program begin?

Accepted Answer

The credit applies to qualifying contributions beginning January 1, 2027, subject to state participation and final Treasury and IRS guidance.

Question 5

Is the program available in every state?

Accepted Answer

No. A state or the District of Columbia must elect to participate and submit qualifying SGOs for the applicable year. State participation and SGO listings are subject to change.

Question 6

Is the credit refundable?

Accepted Answer

The credit is generally nonrefundable. It may reduce eligible federal income-tax liability, but it does not create a refund beyond the amount otherwise permitted under federal law.

Question 7

Is the credit the same as a tax deduction?

Accepted Answer

No. A tax credit reduces eligible federal income-tax liability dollar-for-dollar. A deduction generally reduces the amount of income subject to tax. The Section 25F benefit is a credit, subject to the taxpayer's applicable federal tax liability, statutory limitations, and IRS and Treasury rules.

Question 8

Can unused credit be carried forward?

Accepted Answer

If the full allowable credit cannot be used in the contribution year, unused credit may be eligible to carry forward for up to five succeeding tax years, subject to applicable rules.

Question 9

Who administers the program?

Accepted Answer

The federal credit is administered under federal law by the applicable federal agencies. Participating states identify qualifying SGOs, and those nonprofit SGOs receive contributions and award scholarships. PSC is a private administrator that provides the technology and operational infrastructure SGOs use to run their programs.

Question 10

What organizations can qualify as SGOs?

Accepted Answer

A qualifying SGO must generally be described in Section 501(c)(3), be exempt from federal income tax, not be a private foundation, and appear on a participating state's SGO list, in addition to satisfying the operational requirements of Section 25F.

Question 11

What is the 90% scholarship requirement?

Accepted Answer

A qualifying SGO must generally spend at least 90% of its income on scholarships for eligible students, rather than on other organizational purposes.

Question 12

What does separate accounting require?

Accepted Answer

A qualifying SGO must maintain separate accounts for qualified contributions and prevent commingling with other funds, with financial controls and documentation that support the separation.

Question 13

What is the 10-student requirement?

Accepted Answer

A qualifying SGO must generally provide scholarships to at least 10 students who do not all attend the same school.

Question 14

Can an SGO operate in multiple states?

Accepted Answer

An SGO may operate in more than one participating state where it satisfies the applicable federal requirements and appears on each state's SGO list. Requirements vary by state.

Question 15

Can an SGO outsource administrative services?

Accepted Answer

An SGO may engage service providers for administration, technology, fundraising support, and fulfillment operations. The SGO retains governance, fiduciary authority, custody of contributions, and responsibility for compliance.

Question 16

Who makes final scholarship decisions?

Accepted Answer

The participating SGO makes final scholarship decisions under its own policies, applicable law, and available funding. PSC does not select scholarship recipients.

Question 17

How does PSC support compliance?

Accepted Answer

PSC provides Section 25F workflow controls, separate-fund tracking, eligibility-verification procedures, documentation management, annual certification support, and audit-ready reporting. PSC does not provide legal or tax advice.

Question 18

How much may I contribute?

Accepted Answer

You may contribute any amount a participating SGO accepts. The federal credit is limited to the applicable annual maximum, currently understood to be up to $1,700 per eligible taxpayer, and is further limited by your federal tax liability.

Question 19

Can I direct my contribution to a particular child?

Accepted Answer

No. A qualifying SGO must avoid earmarking contributions for a particular student. A contribution may not be directed to a specific child.

Question 20

Does contributing guarantee my child a scholarship?

Accepted Answer

No. Contributions and scholarship applications are separate processes. A contribution does not guarantee that the donor, the donor's child, or any related person will receive a scholarship.

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