Federal Scholarship Tax Credit Program
A New Federal Opportunity Beginning in 2027
The Federal Scholarship Tax Credit Program is a new federal initiative scheduled to begin January 1, 2027. It will allow individual taxpayers to make qualifying monetary contributions to approved Scholarship Granting Organizations and potentially receive a federal income tax credit of up to $1,700 annually.
South Dakota has elected to participate in the program for 2027. South Dakota Partners in Education intends to participate as a Scholarship Granting Organization, subject to completion of all federal and state designation and certification requirements.
The new federal program will be completely separate from the South Dakota Insurance Premium Tax Credit Scholarship Program that SDPE currently administers. The existing state program remains unchanged.
IMPORTANT NOTICE
Information last updated September 21, 2026. Federal implementation guidance remains under development, and program details are subject to change. This information is provided for general educational purposes and is not tax or legal advice. Taxpayers should consult their own tax adviser regarding their eligibility for any federal tax credit.
FAQs
What is the Federal Scholarship Tax Credit Program?
The program was created under Section 25F of the Internal Revenue Code. Beginning in 2027, individual taxpayers may be able to receive a federal income tax credit for qualifying monetary contributions made to an approved Scholarship Granting Organization.
Scholarship Granting Organizations will use those contributions to provide scholarships for qualified K-12 educational expenses for eligible students.
Has South Dakota joined the federal program?
Yes. South Dakota has made an advance election to participate in the federal program for calendar year 2027.
The state must also provide the IRS with a certified list of Scholarship Granting Organizations eligible to participate. SDPE intends to seek inclusion on that list and is preparing to meet the applicable federal and state requirements.
Is SDPE already approved to accept federal tax-credit contributions?
Not yet. Although South Dakota has elected to participate, the required process for identifying and certifying participating Scholarship Granting Organizations has not been completed.
SDPE will provide additional information once its participation has been formally confirmed. Contributions intended to qualify for the new federal credit cannot be made before January 1, 2027.
How much is the federal tax credit?
An individual taxpayer may be eligible for a federal income tax credit of up to $1,700 annually for qualifying monetary contributions.
The $1,700 amount is the maximum potential annual federal tax credit. It is not necessarily a limit on the amount someone may contribute, and it is not a limit on the amount of an individual student’s scholarship.
The credit is nonrefundable. This means it may reduce a taxpayer’s federal income tax liability, but it cannot reduce that liability below zero. Federal law generally allows unused credit to be carried forward for up to five years, subject to applicable requirements.
Taxpayers should consult their own tax adviser regarding their eligibility and individual tax circumstances.
Who may contribute?
The federal credit is intended for qualifying monetary contributions made by individual taxpayers.
SDPE anticipates accepting contributions by check, ACH, credit card, or another approved electronic payment method. SDPE will not accept physical cash.
Additional procedures for making contributions and documenting the credit will be announced after federal guidance is issued and SDPE’s participation is confirmed.
When can contributions begin?
Qualifying contributions under the federal program may not be made before January 1, 2027. SDPE will announce its contribution process after all necessary federal and state requirements have been completed.
Who may qualify for a scholarship?
Under federal law, an eligible student generally must:
- Be eligible to enroll in a public elementary or secondary school.
- Be a member of a household with income that does not exceed 300 percent of the applicable area median gross income.
- Meet all other federal requirements and the scholarship policies established by the participating Scholarship Granting Organization.
The documentation required to verify eligibility has not yet been finalized. SDPE will publish specific income guidelines, application requirements, and verification procedures when they are available.
Will homeschool or microschool students qualify?
Eligibility for students participating in homeschool, microschool, or other alternative education arrangements depends on federal guidance and how those arrangements are recognized under South Dakota law.
SDPE cannot confirm eligibility for these students at this time. We will update this information when federal and state requirements are clarified.
What expenses will SDPE’s scholarships cover?
Federal law permits scholarships for certain qualified K-12 educational expenses. However, each Scholarship Granting Organization will establish its own scholarship program within federal requirements.
SDPE currently anticipates beginning its federal program with tuition scholarships for eligible students attending participating accredited private K-12 schools in South Dakota. Final program offerings will be announced after Treasury and IRS guidance is issued and SDPE’s policies have been approved.
For its anticipated first-year federal program, SDPE has not approved computers, internet service, transportation, uniforms, room and board, tutoring, or other non-tuition expenses. Additional scholarship uses may be considered in future years, subject to federal requirements and SDPE policy.
When can families apply?
SDPE has not yet opened a federal scholarship application. The application schedule, participating-school requirements, income documentation, and scholarship amounts are still being developed.
Families should continue to check this page for official updates. Applying for or receiving a scholarship through SDPE’s existing state program will not automatically constitute an application for the federal program.
Are the state and federal scholarship programs the same?
No. They are separate programs.
SDPE’s existing South Dakota program is supported by contributions from participating insurance companies that receive a South Dakota insurance premium tax credit. It provides tuition scholarships under South Dakota law.
The new federal program will be supported by qualifying monetary contributions from individual taxpayers and will operate under separate federal requirements. Separate contribution, application, accounting, eligibility, and scholarship procedures will apply.
Where can I find official federal information?
For the latest federal information, visit the official IRS Federal Scholarship Tax Credit page.