Q: What would a federal tax credit for gifts to scholarship-granting organizations mean?
A: The measure currently under consideration in Congress would allow individuals to receive a dollar for dollar tax credit for donations to scholarship granting organizations (SGOs) offering K-12 scholarships. This legislation represents the best chance to bring education freedom to all 50 states by 2026.
Q: How many tax credits would be available?
A: The version of the measure that passed out of the House calls for up to $5 billion in tax credits each year for at least four years (from 2026 through 2029), and there is an escalator clause that could push that number even higher, based on demand.
Q: How would the tax credits be distributed and would there be limits by state?
A: A portion of the tax credit dollars would be allocated to each state, so that children in every state have the opportunity to benefit. Once the SGOs in a state reach their allocation, the remaining tax credits would be awarded by the Treasury Department on a first-come, first-serve basis as donors apply for them. Donating earlier in the year while tax credits are still available is recommended. Once $5 billion in tax credits have been awarded, there would be no further tax credits awarded until the following year.
Q: Who would be eligible to receive a federal tax credit?
A: Any individual with a federal tax liability who files a Federal 1040 Form could apply for a tax credit for a donation to an SGO.
Q: How much could I donate and still receive a tax credit?
A: Taxpayers could donate up to 10% of their adjusted gross income or $5,000, whichever is higher. For example, if your adjusted gross income is $250,000, and your federal tax liability is $35,000, you could make a $25,000 gift to CSF (10% of $250,000), reducing the amount you would pay the IRS to $10,000. Instead of paying taxes to the federal government, you could fund scholarships and make even more of a difference in children’s lives!
If you are currently giving CSF $2,500 a year to underwrite the average cost of a scholarship for one child, a $25,000 tax credit donation would allow you to help ten more children without a penny more in out of pocket expenses! That’s ten more lives changed for the better!
Please note, there is no minimum donation and no amount is too small.
Q: How would the federal tax credit be different from a charitable deduction?
A: The value of a charitable deduction depends on your marginal tax rate. For example, if you are in the 22% tax bracket, a $1,000 donation saves you $220. However, the tax credit would allow you to reduce your tax liability dollar for dollar by the amount of your donation. For example, the same $1,000 donation under the tax credit would reduce your tax liability by $1,000.
Q: What steps would I have to take to apply for and receive a federal tax credit?
A: As the Senate works through its version of the budget reconciliation bill, changes will likely be made before the measure is signed into law by the President. Regulations would then be promulgated by the U.S. Treasury Department, which would release instructions and rules regarding applying for a tax credit. We will be sure to keep you posted throughout the process.
Q: When could I begin applying for a tax credit?
A: Under the current version of the bill, individuals could begin applying for a tax credit in 2026, and would apply the tax credit to their 2026 federal tax return filed in 2027.
Q: Can I donate from my donor-advised fund (DAF) and receive a tax credit?
A: Gifts made through DAFs are not eligible for a federal tax credit since the donor receives a tax benefit upon investing money in a DAF rather than when a donation is made through the DAF.
Q: Can I donate stocks and receive a tax credit?
A: Yes, currently stock gifts are eligible for the federal tax credits.
Q: If I donate to a state tax credit program, can I get a tax credit on both my state and federal taxes?
A: The bill does not allow for an individual to claim tax credits for the same donation on both their state and federal taxes. However, you could make a donation to an SGO that administers a state tax credit program and claim a tax credit on your state tax return, and then make a second donation to the same SGO and claim a federal tax credit on the second donation.
Q: Which Scholarship-Granting Organizations (SGOs) would be eligible to receive tax credit donations under the measure?
A: According to the bill, all SGOs that currently administer state tax credit programs would be automatically eligible to receive federal tax credit donations. In addition, SGOs currently administering privately-funded scholarship programs would be eligible as long as they fulfill requirements including maintaining 501(c)(3) status and conducting an annual audit. From what we understand, CSF and all CSF partner programs would qualify to receive tax credit donations under the measure.
Q: Could I donate to an SGO based in another state?
A: Yes, currently there are no restrictions on which SGO you could support under the federal tax credit initiative. You could choose any SGO based in any state. The tax credits would be monitored and awarded through the U.S. Treasury Department, and your state government would not be involved.
Q: What is the current status of the federal tax credit measure and how can I stay updated on its progress?
A: The federal tax credit for individuals making gifts to scholarship granting organizations was included as part of the budget reconciliation bill passed by the House of Representatives on May 22nd. Currently, the Senate is considering its own version of the budget reconciliation bill, and we hope an even stronger tax credit measure will be included in the Senate bill. If the federal tax credit is included in the Senate’s budget reconciliation bill and both houses agree on the final version of the bill, it would be signed into law by the President. Regulations would then be promulgated by the U.S. Treasury Department, which would then release instructions and rules regarding applying for a tax credit.
Sign up below to receive updates on the measure’s progress – and please email Darla Romfo, President and CEO, or Michele Mitola, Vice President of Strategic Planning and Development, if you have any questions about the federal tax credit and what it could mean for you and your charitable giving.