Federal scholarship tax credit for microschools

Most of the Learn hub is about state ESA programs: Texas TEFA, Arizona ESA, Florida FES, and the rest. This post is about something different and new. In 2025 Congress created the first permanent federalschool-choice program, a tax credit that funds K-12 scholarships nationwide. It does not replace your state’s ESA. It sits on top of it, and for some families the two can be used together.

The catch worth saying up front: the law is settled, but the rules that decide exactly how it works are not. Treasury and the IRS have only previewed their guidance, with the full proposed rule expected by the end of September 2026 and the program effective in tax year 2027. So read what follows as the confirmed shape of the program, with the operational details still being written.

What the federal scholarship tax credit is

The One Big Beautiful Bill Act (Public Law 119-21, signed July 2025) created a new federal tax credit, codified at Internal Revenue Code Section 25F. The IRS calls the consumer-facing program the Federal Scholarship Tax Credit, or FSTC. The mechanics:

• An individual taxpayer who donates cash to an approved Scholarship Granting Organization (SGO) can claim a nonrefundable federal tax credit of up to $1,700 per year. The $1,700 cap is flat regardless of filing status, so it does not double for a married couple filing jointly. Unused credit can carry forward up to five years.
• The SGO uses those donations to award scholarships to eligible K-12 students. The scholarship a family receives is excluded from their income under a companion provision, Section 139K.
• The credit applies starting in tax year 2027, for donations made on or after January 1, 2027. Taxpayers first claim it when filing in 2028.

In plain terms: donors fund a nonprofit, the donor gets most of the gift back as a tax credit, and the nonprofit hands out scholarships families can spend on school. The money does not come from a state ESA account and it does not flow through Odyssey or ClassWallet. It is a separate pipe.

It only works in states that opt in

The credit is only available for donations to SGOs in states that have elected to participate. A state’s governor (or an official the state designates) makes that election with the IRS and submits a list of qualifying SGOs.

As of mid-May 2026, the IRS listed 27 states that had formally elected to participate, and by early June around 31 had opted in or moved to, a count that was still climbing as more legislatures acted. Those numbers move, so the only reliable answer for your state is the live IRS list linked in the sources below. If your state has not opted in, families there cannot receive these scholarships, even though a donor in that state could still give to an SGO elsewhere.

Who can receive a scholarship

A student is eligible if their household income is at or below 300% of the area median gross income (as calculated for their area) and they are eligible to enroll in a public elementary or secondary school. Because the threshold is tied to local median income, the actual dollar ceiling varies a lot by location. The funds can go toward the expenses on the federal Coverdell list: tuition, fees, books, supplies, academic tutoring, special-needs services, and similar K-12 costs.

The microschool question

This is the part that matters most to our readers, and the part that is still least settled. Treasury previewed in June 2026 that the coming rule will treat a “school” as a public, private, or religious school providing K-12 education as determined under state law, and that a home school would count as a school if it is treated as a school under state law. What that means in practice:

• A microschool that operates as a state-recognized private school, in a state that has opted in, is on the clear path to participating.
• A microschool that operates under homeschool law depends entirely on whether its state legally treats home schools as schools. Some states do; many do not.

The National Microschooling Center has flagged Florida, Ohio, and Tennessee as places where microschools operating outside the traditional private-school framework could fall into a gap, where neither the private-school path nor a homeschool-as-school path clearly applies. That is a flagged risk, not a settled outcome. The actual answer for any given microschool waits on two things: the final IRS rule, and how that school is classified under its own state’s law.

Can a family use this and a state ESA?

At the federal level, yes. The statute contains no provision preventing a student from receiving both a federal-tax-credit scholarship and aid from another program, including a state ESA. So a Texas TEFA family or an Arizona ESA family could, in principle, also hold one of these federal scholarships.

The honest caveat: how that actually coordinates in practice is not yet defined. The federal rules are still being written, and a participating state could layer its own coordination limits when it opts in. Treat “they can stack” as true at the federal statutory level and unsettled at the operational level until the guidance lands.

What is still being written

Keep these in the “not final yet” column:

• The full Treasury and IRS regulations, including the working definition of “school” and how the 300% income test is operationalized. The proposed rule is expected by the end of September 2026.
• How the federal scholarship coordinates with each state’s ESA in practice.
• The exact, current list of participating states, which changes as legislatures act.

What an operator can do now

Nothing about this requires action before 2027, but three habits put you in a good position:

• Track your state’s status on the IRS list, and know whether your microschool is classified as a private school or under homeschool law in your state. That classification is what decides your eligibility once the rule is final.
• Watch for the September 2026 rule before you tell any family how the federal scholarship will work for them. Until then, point families to the IRS page rather than making promises.
• Keep clean, dated records by student and by funding source. If a family ends up using a state ESA and a federal scholarship, you will be reconciling two separate money flows against one tuition bill. That cross-program record-keeping is exactly what CohortLedger is built to carry, and it is the same discipline a state reviewer already expects.

For the programs that pay today, start with which states have ESA money in 2026-27. The federal credit is a 2027 story layered on top of those.