What is ECCA / FSTC? The Federal Scholarship Tax Credit (§25F) explained

TL;DR

• ECCA is a federal tax credit scholarship program created by the Educational Choice for Children Act, enacted July 4, 2025 as part of federal budget reconciliation.
• U.S. taxpayers can claim a non-refundable $1,700 federal income tax credit for donations to a qualifying Scholarship Granting Organization (SGO), starting January 1, 2027.
• The donations fund K–12 scholarships for eligible families. SGOs must spend at least 90% of donations on scholarships (10% admin cap).
• For families in a given state to be eligible, that state’s governor must opt in by submitting a list of qualifying SGOs to the U.S. Treasury annually by January 1.
• As of mid-2026, 28 states have opted in; 4 governors have vetoed legislative opt-in bills; 4 states have declined; 15 have not yet decided.

What ECCA / FSTC / §25F is

Three names, one program. The Educational Choice for Children Act (ECCA) is what Congress called the bill. The IRS officially refers to it as the Federal Scholarship Tax Credit (FSTC). Tax professionals know it by its tax-code section, IRC §25F. (See our quick guide to the program’s names for the full breakdown.)

Whatever you call it, it’s a federal law that creates a nationwide tax credit scholarship program for K–12 education — the first program of its kind at the federal level. Unlike a voucher (where government dollars follow a student to a school), the program works through the tax code: private donors give cash to qualifying nonprofit Scholarship Granting Organizations (SGOs), and in exchange they reduce their federal income tax bill by the amount of their donation, up to $1,700 per tax return. Those SGOs then award scholarships to eligible K–12 students.

Because ECCA is structured as a tax credit rather than direct federal spending on schools, it does not appropriate any new federal money for education. Instead, it lets taxpayers redirect what they would otherwise owe in federal income tax into a scholarship pool.

How the program works

The mechanics involve four parties:

1. Donors — any U.S. individual taxpayer — give cash to a qualifying Scholarship Granting Organization (SGO). ECCA only accepts cash donations — not stock, securities, or other property.
2. The donor claims a federal tax credit of up to $1,700 per tax return on their federal income tax return. The credit is non-refundable, meaning it can reduce the donor’s tax liability to zero but does not produce a refund beyond that.
3. The SGO awards scholarships to eligible K–12 students from the donations it receives. ECCA caps the SGO’s administrative expenses at 10%, meaning at least 90% of every dollar donated must reach scholarships.
4. Families use the scholarships to pay for qualifying K–12 educational expenses at public, private, religious, or other eligible educational settings.

Who benefits

Students and families

K–12 students from eligible households can receive scholarships to help cover educational expenses. Eligibility is set by federal law and is relatively broad, with income limits tied to area median income. Scholarships can be used at a wide range of educational settings.

Donors

Any U.S. taxpayer can claim the credit, regardless of income. Donors effectively redirect federal tax they would have paid into scholarships for kids in their own community (if their state has opted in).

Schools and educational providers

Schools and qualifying programs that serve scholarship recipients receive new funding without taking on federal regulatory strings, since the money flows through families and SGOs rather than as a direct federal grant.

States

Participating states see federal tax dollars stay in their communities rather than flow to scholarships in other states.

Why state opt-in matters

ECCA is a federal program, but it requires state participation to deliver scholarships to families in that state. The mechanism: each state’s governor (or another state-designated authority) must submit a list of qualifying SGOs operating in that state to the U.S. Treasury by January 1 each year. Without that submission, no SGOs in the state are designated, and no scholarships can be awarded to families there.

Importantly, donors in a non-participating state can still claim the federal tax credit by giving to an SGO in a state that has opted in. So the scholarships flow elsewhere, but the donor still benefits. The cost — in lost local scholarship dollars — falls on families in the non-participating state.

Want to see which states have opted in? Browse the state-by-state status map.

Timeline and key dates

• July 4, 2025 — ECCA enacted as part of the federal budget reconciliation bill.
• December 12, 2025 — IRS formally opened the state opt-in process.
• 2026 — States submit initial opt-in notifications and SGO lists. Governors and legislatures debate participation.
• January 1, 2027 — Program goes live. Donations on or after this date are eligible for the federal tax credit. SGOs in opted-in states begin awarding scholarships.
• Annually thereafter, by January 1 — Each participating state’s governor resubmits the list of qualifying SGOs. States can opt in (or out) each year.

Caps, limits, and rules

• Donor credit cap: $1,700 per tax return per year. Joint filers do not get $3,400 — the cap is per return.
• Non-refundable: The credit can reduce tax liability to zero but does not produce a refund beyond that.
• SGO administrative cap: No more than 10% of donations may go to administrative expenses; at least 90% must reach scholarships.
• Eligible students: K–12 students whose household income falls under the federal eligibility threshold (linked to area median income).
• Eligible expenses: Tuition, fees, books, tutoring, and other qualified educational expenses at eligible providers.

How ECCA became law

ECCA was introduced in earlier sessions of Congress as standalone legislation by Republican lawmakers, including Senator Bill Cassidy (R-LA) and Representative Adrian Smith (R-NE), with support from school-choice advocacy groups. After repeated standalone attempts stalled, ECCA was incorporated into the federal budget reconciliation package and signed into law on July 4, 2025.

Because ECCA passed via reconciliation, it was structured as a tax-code change rather than as a new spending program — a constraint that shaped its non-refundable, capped-credit design.

Frequently asked questions