Key Takeaways
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The federal tax credit for Scholarship Granting Organizations will begin in 2027 and may impact independent K–12 schools depending on state participation.
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Scholarship Granting Organizations must meet strict certification and compliance standards to distribute scholarships to middle-income families.
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Independent schools in states that opt into the program could see improved enrollment stability and greater access for families seeking private education.
The Educational Choice for Children Act (the Act) in Section 70411 of the recently passed One Big Beautiful Bill Act (OBBBA) introduced a federal tax credit for donations to Scholarship Granting Organizations (SGOs), set to take effect in 2027. The new law, sparking both hope and concern across the education sector, will allow taxpayers to claim a non-refundable federal tax credit per year of up to $1,700 for individuals and $3,400 for married couples for cash donations to qualified SGOs. While OBBBA is designed to expand school choice for low- and middle-income families, it also represents an avenue for financial aid support for independent K–12 schools, as long as your state opts in.
States must certify SGOs and notify the U.S. Treasury before the January 1, 2027, launch date. Currently, 19 states offer state-level SGO tax credits, including Alabama, Arizona, Florida, Georgia, Pennsylvania and others. These states are most likely to opt into the federal program due to existing infrastructure and interest. As of today, New York, New Jersey, Rhode Island and Connecticut have not indicated they will opt into the program.
What Is a Scholarship Granting Organization?
An SGO is a 501(c)(3) public charity with the primary mission of awarding scholarships for K–12 education. SGOs operate independently of schools but often collaborate closely with them.
SGOs collect donations from individuals or corporations and are required to distribute at least 90% of donated funds as scholarships annually, serve a minimum of 10 students per year, not all attending the same school and award scholarships to students from families earning no more than 300% of the area median income (AMI). Scholarships can be used for a wide range of K–12 educational expenses.
To participate under the Act, an SGO must operate in a state that opts into the federal program, be certified by that state and be approved by the U.S. Treasury. SGOs must also comply with any additional state-level regulations, which may include income verification, reporting requirements and audit obligations.
Key Benefits for Independent K–12 Schools Which Operate in States that Opt In
1. Greater Access for Middle-Income FamiliesOBBBA opens the door to private education for families with household incomes between $90,000–$120,000 (depending on AMI), as it could increase the amount of financial aid available to potential students which are covered by the distributions from the SGO.
2. Stronger Enrollment StabilityA 2023 survey by Commonfund noted that enrollment was one of the top concerns for independent schools. SGOs offer a solution by:
- Providing access to students independent schools may not otherwise reach.
- Supporting long-term enrollment stability.
- Improving competitiveness with charter and magnet schools.
Stay Up to Date on What Your State Might Do
Though the federal SGO tax credit program doesn’t launch until 2027, it is incredibly important to be aware of whether your state is thinking about opting into the Act. We will keep you informed of any states who opt into the program and how it could affect your school.
Contact Us
If you have any questions, please contact your PKF O’Connor Davies client service team or:
Robert Cordero, CPA
Partner
Independent School Practice Leader
rcordero@pkfod.com | 914.341.7031
Michael Trapp, CPA
Director
Independent School Practice
mtrapp@pkfod.com | 914.341.7640
Armilee Siton, CPA, CIA, CGMA
Director
Independent School Practice
msiton@pkfod.com | 908.272.6200