How the Education Freedom Tax Credit Works
The Education Freedom Tax Credit connects a federal tax incentive, state participation decisions, nonprofit SGOs, individual taxpayers, and eligible families into a single lifecycle. This page walks through each stage of that lifecycle and explains how each participant engages with the process, and where PSC's administrative role fits.
From State Election to Scholarship Award
A State Elects to Participate
A state or the District of Columbia voluntarily elects to participate in the federal program for a given calendar year and establishes the process it will use to identify qualifying SGOs.
The State Publishes Its SGO List
The state compiles and publishes a list of nonprofit organizations that satisfy the federal statutory requirements to operate as an SGO for that year. Only contributions to listed SGOs can support a federal credit claim.
A Taxpayer Makes a Qualified Contribution
An individual taxpayer makes a qualifying cash contribution to an SGO appearing on an applicable state list, without earmarking the gift for a specific student.
The SGO Segregates the Funds
The SGO deposits the contribution into a segregated account, preventing commingling with other funds, and issues the donor an acknowledgment supporting a potential federal credit claim.
Eligible Families Apply
Families of eligible K–12 students submit applications, and the SGO verifies household income, family size, and other qualification criteria under its published policies.
Scholarships and Tax Records Are Issued
The SGO awards scholarships toward qualified education expenses, disburses or reimburses eligible providers, and maintains the records needed for its own compliance reporting and the donor's tax records.
How Each Participant Experiences the Program
Every participant sees a different slice of the same process. Select a role to learn more about that participant's responsibilities and next steps.
State Government
Elects to participate, sets listing criteria, and publishes the state's qualifying SGO list for the year.
ContinueScholarship Granting Organization
Receives contributions, verifies eligibility, and retains full legal authority over scholarship awards and program funds.
ContinueIndividual Taxpayer
Makes a qualifying cash contribution to a listed SGO and may claim a federal credit, subject to statutory limits.
ContinueFamily and Student
Applies for a scholarship, provides required documentation, and uses awarded funds for qualified education expenses.
ContinueSchool or Provider
Delivers qualifying instruction, tutoring, or services and receives payment or reimbursement through the SGO's administered process.
Continue
PSC's Administrative Role Versus SGO Authority
PSC is a private administration company. It is not a government agency and, unless separately identified as the operator of a specific participating SGO, PSC is not itself the organization receiving contributions or awarding scholarships.
Participating SGOs contract with PSC for the technology platforms, fundraising infrastructure, compliance workflows, scholarship-administration operations, and reporting systems that support each step of the lifecycle above. PSC's role is to supply the systems and operational support behind these steps.
The SGO retains legal custody of contributed funds, sole authority over eligibility determinations and scholarship awards, and ultimate responsibility for regulatory compliance under Section 25F and applicable state law.