Understanding IRC Section 25F and the Federal Scholarship Tax Credit

The Legislative Foundation for the Federal Scholarship Tax Credit

IRC Section 25F (Section 25F or §25F) establishes the federal framework for the Federal Scholarship Tax Credit (FSTC). Thie provision was enacted through the Educational Choice for Children Act (ECCA) and incorporated into the Internal Revenue Code through Section 70411 of the One Big Beautiful Bill Act.

The law allows eligible taxpayers to receive a federal tax credit for qualifying contributions made to approved Scholarship Granting Organizations (SGOs), creating a new mechanism for supporting educational opportunity through private contributions.

Unlike Section 127 or Section 529, which focus on employer-sponsored education benefits and education savings, IRC Section 25F establishes a tax credit framework for individual taxpayers.

What Is IRC Section 25F?

IRC Section 25F creates a federal tax credit for qualifying contributions made to eligible Scholarship Granting Organizations (SGOs).

As currently enacted, the framework:

  • Allows eligible taxpayers to claim a dollar-for-dollar federal tax credit up to $1,700 per taxpayer per year for qualifying contributions.
  • Supports K-12 educational opportunities through approved SGOs.
  • Relies on state participation and certification of qualifying organizations.
  • Establishes rules governing contributions, scholarship distribution, and program administration.

Watch: Understanding IRC Section 25F

Get a quick overview of how Section 25F establishes the framework for tax-advantaged educational giving by individuals.

[Embedded Video]

Why IRC Section 25F Matters for Employees and Employers

Supporting Educational Opportunity

The framework encourages private support of K-12 educational opportunities through a structured scholarship model administered by approved SGOs.

Creating New Employee Benefit Opportunities

The Federal Scholarship Tax Credit allows employers to support participation through payroll deduction programs that make contributions easier for employees to manage over time. This creates a new category of voluntary benefit focused on education and community impact.

Expanding Education and Financial Wellness Strategies

For employers, the FSTC can complement broader education and financial wellness offerings, including:

  • Tuition assistance.
  • Tuition reimbursement.
  • Student loan repayment.
  • 529 education savings benefits.

What We Know Today

The Federal Scholarship Tax Credit has been enacted into law, but regulatory guidance continues to evolve.

Treasury and IRS proposed regulations were published in October 2026 and include additional guidance related to participating states, Scholarship Granting Organizations, reporting requirements, recordkeeping obligations, and qualified contributions. Comments on the proposed regulations are due Dec. 1, 2026, and a public hearing is scheduled for Dec. 15, 2026. Additional clarification and regulatory updates may occur before final regulations are adopted.

What This Means for Employers:

The statute is in place and participation begins Jan. 1, 2027, but certain implementation details may continue to be refined as final regulations are developed.

What Qualifies Under IRC Section 25F?

While Treasury and IRS guidance continues to evolve, IRC Section 25F already establishes several core requirements involving qualified contributions, Scholarship Granting Organizations (SGOs), participating states, and scholarship administration. Additional regulatory guidance may further clarify implementation details over time.

Qualified Contributions

Eligible taxpayers may receive a federal tax credit for qualifying cash contributions made to approved SGOs. The Federal Scholarship Tax Credit applies to contributions that satisfy IRC Section 25F requirements.

Scholarship Granting Organizations

SGOs serve as the intermediary, receiving contributions and awarding scholarships. To participate in the Federal Scholarship Tax Credit program, SGOs must satisfy statutory requirements and be approved under the program framework.

Eligible Students

Scholarships are awarded to qualifying elementary and secondary students through participating SGOs. Student eligibility and scholarship administration are subject to program rules and ongoing guidance.

Qualified Educational Expenses

Scholarship funds may be used for qualified educational expenses permitted under the program. Additional regulatory guidance may further clarify expense definitions and eligibility rules through future regulations.

Because IRC Section 25F is a newly enacted federal framework, employers, employees, and SGOs should continue monitoring IRS and Treasury guidance. Future regulations may provide additional clarification regarding participation requirements, qualified expenses, reporting expectations, and program administration.

Scholarship Granting Organizations (SGOs)

A Scholarship Granting Organization (SGO) is a qualifying nonprofit organization that receives contributions and awards scholarships under the Federal Scholarship Tax Credit framework.

Under IRC Section 25F, SGOs must satisfy specific requirements related to scholarship distribution, student eligibility, reporting, and use of funds. As of today, SGOs remain one of the most important components of the Federal Scholarship Tax Credit program because all qualifying contributions flow through them.

How IRC Section 25F Has Evolved

How the One Big Beautiful Bill Act Created the Scholarship Tax Credit

Section 70411 of the One Big Beautiful Bill Act added Section 25F to the Internal Revenue Code, creating the new federal scholarship tax credit for qualified contributions to SGOs. The law applies to taxable years ending after December 31, 2026.

Educational Choice for Children Act (ECCA)

The Educational Choice for Children Act established the framework that became IRC Section 25F.

Proposed Regulations and IRS Guidance

Treasury and IRS guidance continues to evolve. Proposed regulations have been published and additional clarification may affect:

  • Eligible expenses.
  • Administrative requirements.
  • Participation rules.
  • Documentation expectations.

Future State Participation

Because states must opt in, the list of participating states and certified SGOs may continue to grow over time.

IRC Section 25F is now part of federal law, but regulatory guidance is still developing. Temporary regulations address certain state election, reporting, and recordkeeping requirements, while proposed regulations address additional details involving participating states, eligible SGOs, and qualified contributions.

Comments on the proposed regulations are due 60 days after their scheduled October 2, 2026, publication, and a public hearing is scheduled for December 15, 2026. Because the regulations are not yet final, some details may be clarified or revised through the rulemaking process.

How BenefitEd Supports IRC Section 25F Programs

BenefitEd helps employers navigate and administer Federal Scholarship Tax Credit benefits aligned with the requirements of IRC Section 25F. Our approach combines payroll deduction administration, reporting, ongoing regulatory awareness, and employee support to help organizations confidently offer this emerging benefit while keeping pace with evolving guidance.

Payroll Deduction Administration

BenefitEd helps employers make participation in the Federal Scholarship Tax Credit more accessible by supporting payroll deduction administration. Through payroll deduction, employees can spread qualifying contributions across the year rather than making a larger one-time contribution, creating a simpler path to participation while reducing administrative effort for employers.

Employer Reporting and Visibility

Organizations need visibility into participation and program activity. BenefitEd provides reporting that helps employers track enrollment, payroll deduction activity, and overall program participation while maintaining a clear record of employee contribution activity.

Regulatory Monitoring and Guidance

IRC Section 25F is a new federal framework, and regulatory guidance continues to evolve. BenefitEd monitors legislative developments, IRS guidance, proposed regulations, and implementation updates so employers can better understand how changing requirements may affect participation, administration, and employee communications.

By combining technology, reporting, and ongoing support, BenefitEd helps employers translate the Federal Scholarship Tax Credit framework into a practical employee benefit that is easier to administer, easier to understand, and easier for employees to use.

Legislative Reference and Official Resources

The Law in Its Own Words

26 U.S.C. § 25F

Proposed Regulations

Federal Register proposed rules

Additional Guidance

Frequently Asked Questions

The Federal Scholarship Tax Credit benefit gives schools a unique way to support educational opportunity while offering employees a meaningful new benefit. Through payroll deduction, employees can support scholarship funding and receive a dollar-for-dollar federal tax credit, while schools offer a distinctive benefit with minimal administrative burden.
Schools are not responsible for funding employee contributions. Participating schools pay a nominal monthly fee, while employees choose whether to participate and fund their own contributions through payroll deduction.
Depending on program structure, participating employees may be able to select a Scholarship Granting Organization (SGO) that supports scholarship opportunities tied to their school community. The rules governing scholarship distribution are administered by the SGO and applicable program requirements.
No. BenefitEd manages enrollment, payroll deduction administration, reporting, and participation tracking through a centralized platform, helping minimize the administrative burden placed on school staff.
Schools often look for benefits that are meaningful to employees but do not require significant employer funding. The Federal Scholarship Tax Credit benefit allows schools to support educational opportunity, encourage community impact, and offer a unique benefit without creating a traditional employer-funded program.
Many schools pair the Federal Scholarship Tax Credit benefit with tuition assistance, tuition reimbursement, student loan repayment, or education savings benefits to support employees at different stages of their educational and financial journeys.

Put Section 25F Into Practice

Explore how BenefitEd helps employers turn the Federal Scholarship Tax Credit framework into a meaningful employee benefit through payroll deduction and centralized administration.

Talk to an Expert