The $1,700 Federal Scholarship Tax Credit (FSTC / §25F) explained for donors

TL;DR

• The ECCA federal tax credit is worth up to $1,700 per tax return, claimed against your federal income tax for donations to a qualifying Scholarship Granting Organization (SGO).
• It’s non-refundable — it can wipe out your federal tax bill but won’t produce a refund larger than what you owed.
• The credit is federal: it applies regardless of which state you live in, as long as you donate to an SGO in a state that has opted in.
• Donations starting January 1, 2027 qualify; you claim the credit on your 2027 federal income tax return.
• A tax credit is far more valuable than a charitable deduction. A credit reduces your tax bill dollar-for-dollar; a deduction only reduces your taxable income.

What the credit is

The ECCA tax credit is a federal income tax credit of up to $1,700 per tax return per year. You claim it on your federal tax return (Form 1040) for the year in which you made a qualifying donation to a Scholarship Granting Organization. The credit reduces your federal income tax dollar-for-dollar — meaning a $1,700 donation translates into a $1,700 reduction in what you owe the IRS, subject to the cap and the non-refundable rule.

Non-refundable, explained

“Non-refundable” means the credit can reduce your federal income tax liability to zero, but no further. If your tax bill before the credit is $1,000 and you donate $1,700 to an SGO, your credit zeroes out the $1,000 you owed — but you don’t receive a $700 refund for the unused portion.

This is different from a refundable credit (like the Earned Income Tax Credit), which can produce a refund even when the credit exceeds tax owed. Most taxpayers with steady income owe enough federal tax that they can use the full $1,700 credit; lower-income filers should check whether their pre-credit tax bill is high enough to absorb it.

How to claim it

1. Donate to a qualifying SGO on or after January 1, 2027. The SGO must be on the list submitted by your state’s governor (or another participating state’s governor) to the U.S. Treasury.
2. Receive a written acknowledgment from the SGO documenting the date, amount, and purpose of your donation. This mirrors the substantiation requirement for charitable contributions.
3. Claim the credit on your federal tax return for the year of the donation. The IRS will publish the specific form or schedule before the 2027 tax filing season.
4. Keep your records for at least three years (the standard IRS audit window).

What counts as a qualifying donation

ECCA only accepts cash. The enacted statute (§25F(c)) defines a qualified contribution as “a charitable contribution of cash to a scholarship granting organization.”

• Qualifies: cash — check, electronic transfer, payroll deduction.
• Does NOT qualify: marketable securities (stocks, bonds, ETFs), real estate, cryptocurrency, services, time, or any other property. Earlier draft versions of the bill (H.R. 833) allowed stock donations, but that provision was removed during budget reconciliation to prevent capital-gains tax-shelter abuse. Many older online articles still describe stock donations — those describe the pre-enactment bill, not the law.
• Does NOT qualify: donations to organizations not on a participating state’s designated SGO list.
• Does NOT qualify: donations earmarked for a specific student or family. SGOs decide who gets scholarships independently; donors cannot designate recipients.

Tax credit vs. charitable deduction

A common point of confusion: a tax credit is far more valuable than a charitable deduction.

• Charitable deduction: Reduces your taxable income. A $1,700 deduction in the 24% bracket reduces your tax by $408.
• Tax credit: Reduces your tax bill dollar-for-dollar. A $1,700 ECCA credit reduces your tax by $1,700.

Worked examples

Example 1: A donor with sufficient tax liability

Sarah is a single filer with $80,000 in federal income tax owed for 2027. She donates $1,700 to a qualifying SGO in October 2027. She claims the full $1,700 ECCA credit on her 2027 return; her federal tax bill drops from $80,000 to $78,300. Her out-of-pocket cost for the donation: $0.

Example 2: A donor with low tax liability (with carryforward)

Marcus is a retiree with $1,200 in federal income tax owed for 2027. He donates $1,700 to a qualifying SGO. He claims $1,200 of credit on his 2027 return (zeroing out his tax). The remaining $500 of credit carries forward to 2028, where it can offset future federal tax liability. As long as Marcus owes federal tax in any of the next five years, none of the credit is lost.

Example 3: A married couple filing jointly

Jamie and Alex file jointly. They donate $3,000 to an SGO in 2027. Reading the statute conservatively, they can claim $1,700 of credit on their joint return — the $1,700 cap is per return, not per spouse. The remaining $1,300 of the donation can be treated as a regular §170 charitable contribution (deductible if they itemize); only the $1,700 claimed under §25F is barred from also being deducted.

A note on the Alternative Minimum Tax (AMT)

§25F is a nonrefundable personal credit subject to the §26(a) limitation, which under current law allows nonrefundable personal credits to offset both regular tax and AMT. Most individual donors will not see §25F barred by AMT, but high-income donors with substantial AMT exposure should consult a tax professional. Treasury guidance specifically coordinating §25F with AMT is still pending.

If your state hasn’t opted in

You can still claim the ECCA federal tax credit by donating to a qualifying SGO in a state that has opted in. The credit is federal and not restricted to your home state. The catch: the scholarships funded by your donation will support students in that other state, not in yours.

For most donors who want their dollars to stay in their own community, this is the strongest argument for pushing your state’s governor to opt in: without participation, your federal tax dollars effectively flow elsewhere.

Frequently asked questions