What Is the Federal Scholarship Tax Credit?
Turn your federal taxes into Arizona scholarships
The Federal Scholarship Tax Credit (FSTC) — also called the Education Freedom Tax Credit (EFTC) — was created by the Educational Choice for Children Act (ECCA), Section 25F of the Internal Revenue Code. Beginning January 1, 2027, individual taxpayers who give to a qualified Scholarship Granting Organization (SGO) like APESF can receive a dollar-for-dollar federal tax credit of up to $1,700 per taxpayer, every year, with the tax credit donation deadline of December 31st.
A Tax Credit, Not a Voucher
Instead of the government spending public money, the Federal Scholarship Tax Credit encourages individuals to give to nonprofit Scholarship Granting Organizations like APESF. The money goes from a private donor, to a nonprofit, to a family.
Federal Scholarship Tax Credit
Privately Funded
- Funded by private, voluntary tax credit donations
- Donors give to a nonprofit SGO; the SGO awards scholarships
- Can cover tuition, tutoring, books, supplies & more as federal law allows
- Money never passes through a government agency
School Voucher
Government-Funded
- Funded with public tax dollars
- Government issues funds to families
- Amount and rules set by the state budget
- Depends on annual appropriations
How Donor Contributions Flow
From Every Dollar Donated to a Qualified SGO
The credit is non-refundable; unused credit carries forward up to five years. Consult a tax professional about your situation.
What's New: Federal Guidance Is Here
Rules Released
On October 1, 2026, Treasury and the IRS released proposed regulations for the credit. Taxpayers, SGOs, and states may rely on them for gifts made on or after January 1, 2027.
Up to $3,400 for Couples
Under the proposed rules, each spouse on a joint return is treated as a separate taxpayer, so a married couple can claim up to $3,400 when each spouse makes their own qualifying gift.
Claim With Form 8525
Donors will claim the credit on new IRS Form 8525 using a donor number from their SGO's acknowledgment, not a Social Security number.
Key Dates
Public comments on the proposed rules are due December 1, 2026, with a public hearing December 15. States govenors must opt in by January 1, 2027, and submit their SGO lists by February 15, 2027.
Latest News
See Arizona’s status below, or track every state’s decision on Ballotpedia.
Arizona's Opt-In Status
As of November 6, 2026, Arizona has not opted in to the Federal Scholarship Tax Credit.
Each state’s governor decides whether the state participates. Nationally, 32 states have announced they are opting in for 2027 (30 appear on the IRS’s official list as of October 22, 2026). Governor Hobbs has said she wanted to see federal guidance before committing. That guidance was released on October 1, 2026, so Arizona’s decision for 2027 remains open until the January 1, 2027 election deadline.
The Road So Far
| Jan. 16, 2026 | Governor Hobbs vetoes SB 1106, the first opt-in bill. |
| Apr. 14, 2026 | Governor Hobbs vetoes a second opt-in bill, SB 1142. |
| May 5, 2026 | Opt-in language included in the vetoed budget bill, HB 4152. |
| June 13, 2026 | Signed bipartisan budget bill, HB 4168, does not include an opt-in. |
| Oct. 1, 2026 | Treasury and IRS release proposed federal regulations. |
| Jan. 1, 2027 | Deadline for states to file their election to participate in 2027. |
| Feb. 15, 2027 | Deadline for participating states to submit their 2027 SGO lists. |
What It Means
What this means today:
- Arizona donors can still claim the federal credit in 2027 by giving to an SGO on a participating state’s list, but those scholarships serve students who live in that participating state.
- Arizona families are not eligible for FSTC scholarships until Arizona’s Governor Hobbs opts in.
- APESF is ready. If Arizona opts in, APESF intends to seek a place on the state’s list of qualified SGOs so Arizona gifts can stay with Arizona students.
- Arizona’s existing state tax credit programs are not affected; you can continue to give to APESF and claim your Arizona tax credit as usual.
How to Send Your Message
- Click the button above to open the Governor’s Voice an Opinion page.
- Enter your name, email, phone number, and address, and select your county.
- For Subject, choose Education.
- Copy the message below and paste it into the Comments box. Add your name and city at the end, and feel free to make it your own.
- Submit the form. Then share this page so friends and family can do the same.
Sample Message
Dear Governor Hobbs,
I am an Arizona resident, and I respectfully ask you to opt Arizona in to the Federal Scholarship Tax Credit (also called the Education Freedom Tax Credit) for 2027.
You have said you wanted to see federal guidance before deciding. The U.S. Treasury and the IRS released that guidance on October 1, 2026, and 32 states have already committed to participate.
Opting in costs Arizona’s state budget nothing. The credit is funded by individuals’ voluntary donations to qualified nonprofit scholarship organizations. If Arizona does not opt in, Arizonans can still claim the credit, but only by giving to organizations in other states, so those dollars will help children outside Arizona instead of our own students. The vast majority of Arizona families would qualify, including students at both public and private schools.
The deadline for states to elect to participate in 2027 is January 1, 2027. Please opt Arizona in so Arizona’s children can benefit.
Thank you for your consideration.
[Your name]
[Your city]
Who Is Eligible to Recieve Scholarships?
If Arizona opts in, a student may receive an FSTC scholarship when the student is eligible to enroll in a public K–12 school, lives in Arizona, and the household’s income for the prior calendar year is at or below 300% of the area median gross income. The limits below are estimates for the two largest Arizona metro areas.
Phoenix Metro Area
Maricopa & Pinal Counties
| Household size | Income at or below* |
|---|---|
| 1 | $236,100 |
| 2 | $270,000 |
| 3 | $303,600 |
| 4 | $337,200 |
| 5 | $364,200 |
| 6 | $391,200 |
| 7 | $418,200 |
| 8 | $445,200 |
Tucson Area
Pima County
| Household size | Income at or below* |
|---|---|
| 1 | $209,700 |
| 2 | $239,700 |
| 3 | $269,700 |
| 4 | $299,400 |
| 5 | $323,400 |
| 6 | $347,400 |
| 7 | $371,400 |
| 8 | $395,400 |
*Estimated using HUD’s FY2026 income limits (effective May 1, 2026), which the federal rules use as their base, including HUD’s household-size adjustments. Phoenix-Mesa-Chandler MSA (Maricopa and Pinal counties) median family income: $112,400. Tucson MSA (Pima County) median family income: $99,800. The IRS will publish official limits by area and household size each year, and those official figures will control. APESF may set lower limits.
Other ways to qualify: a letter dated within the last 12 months showing a household member currently receives SNAP, TANF, WIC, Section 8 housing assistance, or SSI; children in foster care automatically meet the income test. Under the law, prior-year recipients and their siblings receive priority.
From Donation to Scholarship
1. You Give
Make a donation to APESF and designate it as a Federal Scholarship Tax Credit (Section 25F) contribution. Only individuals can claim the credit.
2. We Acknowledge
By January 31 of the following year, APESF sends your written acknowledgment with our EIN, your total for the year, and your government issued donor number.
3. You Claim
Claim your dollar-for-dollar credit (up to $1,700; $3,400 for couples who each give) on Form 8525 with your federal return. Unused credit carries forward up to five years.
4. Families Apply
Arizona families apply to APESF and we verify income and eligibility under federal rules. You may recommend a school, but not an individual student.
5. We Award
APESF awards scholarships to students following federal priority rules and spends at least 90% of FSTC gifts on scholarships.
6. Students Learn
Tuition is paid directly to the student's school, so your gift goes straight to work for an Arizona child.
Frequently Asked Questions
Answers to common questions from families and donors about the Federal Scholarship Tax Credit. Details are based on Treasury’s proposed rules and may change as final guidance is released.
No. The FSTC is a separate federal program. Arizona’s existing private school tuition tax credit program continues to operate under Arizona law.
The two programs have different eligibility requirements, contribution rules, and tax credit limitations.
Yes. The program allows scholarships to be used for qualifying elementary and secondary education expenses, including eligible expenses associated with public, private, and religious schools.
Yes! In Arizona, a child may receive both state and federal tax credit scholarships. This may be possible in other states as well, but families should check with their scholarship organizations about eligibility requirements and how awards are coordinated. Each state program has its own rules.
No federal income tax is generally owed on qualifying scholarships received through an approved SGO for eligible elementary and secondary education expenses.
No. Meeting the income requirements makes a student eligible to apply, but it does not guarantee a scholarship. Scholarship organizations determine awards based on their funding and applicable program requirements.
Yes, potentially. Arizona residents can contribute to an approved SGO in another participating state and may qualify for the federal credit.
However, those contributions support scholarships for eligible students in the state where the SGO is listed, rather than Arizona students.
The federal program is established beginning with the 2027 tax year. However, states must elect to participate and provide their approved SGO lists annually.
No. You make a charitable contribution to an approved Scholarship Granting Organization, and the contribution may qualify for a dollar-for-dollar federal income tax credit, subject to program limitations.
Yes. The FSTC is a nonrefundable tax credit, meaning it cannot reduce your federal tax liability below zero. However, unused credit generally can be carried forward for up to five years.
Example: You give $1,700 to an approved SGO but owe only $1,000 in federal income tax this year. The credit reduces your tax to $0, and the remaining $700 can be carried forward to use in a future year.
There is an important limitation. The federal credit is reduced by the amount of any state tax credit claimed for the same qualifying contribution.
Example: If you give $1,000 and claim a $1,000 Arizona tax credit for that same gift, no federal credit is available for it. If you give $2,700 and claim a $1,000 Arizona tax credit for it, the remaining $1,700 may qualify for the federal credit.
Why Choose APESF as Your Trusted SGO?
Trusted Since 1998
APESF has helped Arizona families find the best-fit school for their children for more than 25 years.
Four-Star Charity
APESF holds a Four-Star rating from Charity Navigator, the nation's leading charity evaluator.
Accountable & Audited
A 501(c)(3) public charity with an independent volunteer board, an external auditor, and public financial disclosures.
Families First
Our family and school relations team, digital resources, and Spanish-language support guide families from application to award.
Compliance Experts
Decades of experience verifying eligibility, reporting to the state, and following strict scholarship rules prepares us for federal requirements.
Arizona Focused
Every scholarship we award supports an Arizona student, and we are ready to serve as a qualified SGO the day Arizona opts in.
Resources
This page summarizes the Federal Scholarship Tax Credit as of November 6, 2026, based on Treasury’s proposed regulations, which may change before they are finalized. It is not tax or legal advice; please consult your tax professional. APESF cannot award, restrict, or reserve scholarships based solely on a donor’s recommendation, and a taxpayer may not claim a credit if the taxpayer agrees to swap donations with another taxpayer to benefit each other’s dependents.
