The big picture
- Treasury’s new rules give states and scholarship granting organizations (SGOs) a path to launch federal scholarship tax credit programs in 2027.
- States must complete two steps to participate. SGOs need to structure their operations around two distinct tests.
- Important questions about eligible expenses remain open.
Throughout this process, yes. every kid. foundation. is available to state leaders and SGOs to help navigate the process.
Three things to know
- States must opt in and submit an SGO list.
- For 2027, the advance election is due January 1; the SGO list is due February 15. An election alone does not complete participation.
- States are expected to include qualifying SGO that seeks inclusion.
- Treasury does not allow states to add operating restrictions beyond federal law, including limits on eligible school types or qualified expenses.
- SGOs need to understand the 85 percent and 90 percent tests.
- Under the proposed rules, SGOs with at least 85% scholarship-granting activity can measure the 90% scholarship-spending requirement against their dedicated Section 25F accounts rather than all organizational income. Multistate SGOs must meet the 85% threshold and comply separately in each state’s account.
Why this matters
These decisions will determine whether families can access scholarships in 2027 and whether SGOs are ready to receive qualifying donations.
For states: build the process now
Critical deadlines
- January 1, 2027: By 11:59 p.m., states much opt into the new federal tax credit using Form 15714 [LINK?]
- February 15, 2027: By 11:59 p.m.(?) states must submit the list of qualified SGOs to finalize participation
The review process must be inclusive:
- A practical definition of “located.” An organization is located in a state if it is authorized to do business there and complies with the state’s generally applicable charity laws. A physical office is not required.
- Limits on added requirements. States may apply ordinary charity law and reasonably tailored application and reporting requirements. They may not impose operating requirements more restrictive than Section 25F, such as limits on school types or qualified expenses.
- Pathways for new organizations. A new SGO without operating history can be reviewed on its governing documents and written policies, which must expressly require compliance with Section 25F rather than relying on a general “comply with law” clause. Organizations with a pending 501(c)(3) application can also be listed under specific conditions.
- Due process for removals. A state may remove an SGO during the year only through a due process procedure and must promptly notify the IRS.
What states should do now
Confirm who has authority to elect participation, assign implementation responsibility, and build a review calendar to develop the final SGO list that meets the federal deadlines.
For SGOs: separate activity from spending
Understand the two tests
The 85% test measures scholarship-granting activity. The 90% rule measures scholarships paid.
- Keep qualifying donations separate. Every SGO must maintain a segregated Section 25F account for qualified contributions and their earnings, with separate books and records. Multistate SGOs need one account for each participating state.
- Single-state SGOs: Those meeting the 85% test may apply operating requirements, including the 90% rule, to their Section 25F account only. Below that threshold, requirements apply to the whole organization, with 90% measured against all gross receipts.
- Multistate SGOs: Meeting the 85% test is required. Each state needs a separate Section 25F account that independently meets the requirements.
- Supporting work counts toward 85%. Administration, fundraising, governance, compliance, and outreach supporting scholarship granting count. Scholarships outside Section 25F also count.
- Supporting costs do not count toward 90%. Only scholarships paid to eligible students count. SGOs have through the end of the following year to meet the spending requirement.
What SGOs should do now
Review your organizational structure, accounts, written policies, and recordkeeping. Keep records flexible enough to support different ways Treasury might ultimately measure the 85% test.
What remains unresolved
Temporary regulations take effect December 1, 2026. The broader operating rules are proposed, but states, donors, and SGOs may rely on them for contributions beginning January 1, 2027, if they follow the applicable provisions fully and consistently.
Comments are due 60 days after Federal Register publication, approximately December 1. A public hearing is scheduled for December 15, subject to receipt of testimony outlines. No date has been set for final rules.
Three issues deserve special attention
- How to measure 85%. Treasury is considering receipts, expenditures, staff time, program-service activity, or another metric, as well as whether 85% is the right threshold.
- Which schools and expenses qualify. Eligibility to enroll in public school does not automatically make every homeschool or stand-alone education expense eligible. Additional Section 530 guidance is forthcoming.
- How states submit information. IRS portal instructions and Form 15714 details are still forthcoming. Treasury is considering alternative first-year procedures if portals are not ready.
Get help
yes. every kid. foundation. can help states and SGOs navigate the rules, interpret the regulations, identify key decisions and deadlines, build certification and compliance processes, and prepare organizations to operate under Section 25F.
We will continue to share updates as Treasury and the IRS issue further guidance or finalize the rules. Visit the EFTC resources page for more information.
Starting an SGO?
The SGO Start-Up Accelerator cohort offers mentorship, an in-person bootcamp, virtual workshops, legal, design, and fundraising support, and operational-readiness microgrants of $10,000–$20,000. Learn more and apply by October 13, 2026.
This information is for implementation planning only and is not legal or tax advice.
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