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The EFTC / §25F glossary

Plain-English definitions of the terms that come up around the federal scholarship tax credit (§25F) and Scholarship Granting Organizations, for donors, families, and operators. Search or skim.

$1,700 cap: The maximum §25F credit, set at $1,700 'for any taxpayer.' Whether a married-filing-jointly return gets one $1,700 cap or two ($3,400) is unsettled pending Treasury guidance; the prevailing reading is $1,700.
§25F (Section 25F): The section of the Internal Revenue Code that creates the federal scholarship tax credit. Added by the One Big Beautiful Bill Act in 2025 and effective for tax years beginning in 2027.
300% AMI (Area Median Gross Income): The income ceiling for scholarship eligibility: 300% of the area's median gross income, an area-specific figure adjusted for household size, not a single national number.
501(c)(3): The federal tax-exempt charitable status an SGO must hold to operate.
§530 (Coverdell rules): The Code section §25F cross-references to define qualifying expenses and what counts as a 'school', which sends part of that definition back to each state's law.
90/10 rule: §25F requires an SGO to spend at least 90% of its income on scholarships, capping administration at no more than 10%.
Administrative cap: The maximum 10% of income an SGO may spend on operations and administration under the 90/10 rule.
AMT (Alternative Minimum Tax): A parallel federal tax calculation. How the §25F credit coordinates with the AMT is among the open items Treasury still needs to address.
Anti-earmarking: Donors cannot designate their contribution for a specific student or family.
Carryforward: Unused §25F credit (a donation larger than the tax you can offset this year) can be carried forward for up to 5 years.
Categorical eligibility: Automatic income-eligibility for families already in a needs-based program (SNAP, Medicaid, TANF, free/reduced-price lunch), with foster children also treated as eligible.
Charitable solicitation registration: State registration most SGOs must complete before fundraising in a state, typically renewed annually.
Coverdell ESA: A tax-advantaged education savings account under §530. Distinct from a state-funded Education Savings Account (ESA) and from a §25F scholarship.
Disbursement: Paying out scholarship funds, typically to schools, or as receipt-verified reimbursement for qualified expenses.
Donor substantiation: The written acknowledgment an SGO must provide a donor to support a claimed §25F credit.
ECCA (Educational Choice for Children Act): The bill name Congress used for the legislation that became §25F. Same program, different label.
EFTC (Education Freedom Tax Credit): The common name for the §25F credit, used by advocacy groups and adopted by the U.S. Treasury in its June 2026 guidance announcement.
Eligible student: A K-12 student who qualifies for a scholarship, by household income (300% of area median) or by categorical eligibility.
ESA (Education Savings Account): A government-funded, family-controlled account for a range of education expenses. A different school-choice model than an SGO tax-credit scholarship.
Form 1023 / 1023-EZ: IRS applications for 501(c)(3) status. The streamlined 1023-EZ ($275) is for smaller orgs that qualify; the full Form 1023 ($600) is for larger or more complex organizations.
FSTC (Federal Scholarship Tax Credit): The IRS's name for the same §25F credit, used on the IRS program landing page.
Income verification: Confirming an applicant's eligibility through documentation (paystubs, returns, transcripts) or categorical eligibility before awarding a scholarship.
IRS portal: A system Treasury says it plans to build, in phases, for SGO administration and reporting under §25F.
Multistate SGO: An SGO that appears on more than one state's list. It must be located in each state and keep a separate §25F account per state.
Nonrefundable credit: A credit that can reduce your federal tax to $0 but cannot create a refund beyond the tax you owed. The §25F credit is nonrefundable.
Notice 2025-70: The late-2025 IRS notice requesting public comment on §25F implementation.
OBBBA (One Big Beautiful Bill Act): Public Law 119-21, the 2025 reconciliation law. Section 70411 of OBBBA added §25F to the tax code.
Opt-in / advance election: A state governor's election to participate in §25F. Without it, residents can't donate to in-state SGOs and claim the credit. The election is made annually.
Participating state: A state that has opted in and submitted its list of qualified SGOs to the IRS.
Proposed regulations: The Treasury/IRS rules interpreting §25F. Treasury expects them by the end of September 2026; taxpayers may rely on them for 2027.
Qualified contribution: A cash donation to a qualified SGO that is eligible for the §25F credit. The credit is for cash gifts only.
Qualified elementary/secondary education expense: An education cost a scholarship can pay for, defined by cross-reference to §530, tuition, fees, books, curriculum, supplies, and (Treasury intends) tutoring and special-needs services, with detailed expense rules still pending.
Renewal / sibling priority: Award priorities an SGO may apply, for example, continuing prior-year recipients and siblings of current recipients.
Segregated account / safe harbor: A separate §25F account for contributions. Treasury's previewed safe harbor measures the 90% test against this account, separately per state for multistate SGOs.
Self-dealing prohibition: A §25F rule barring SGO insiders from improperly benefiting from the organization.
SGO (Scholarship Granting Organization): A nonprofit that receives donations and awards K-12 scholarships. Under §25F, donors give to an SGO and claim the credit; the SGO awards scholarships to eligible families.
Tax-credit scholarship: The model §25F uses: private donations to an SGO earn the donor a tax credit, and the SGO awards scholarships. Privately funded, not a government appropriation.
Tax liability: The total federal income tax you owe for the year, before withholding. The §25F credit can't exceed it, but withholding does not disqualify you, since liability is what matters.
Unique donor number: A number (generated under an IRS-provided method) that an SGO includes on each donor's written acknowledgment and reports to the IRS, letting the IRS match credits to donors without donors sharing a Social Security number with the SGO.
Voucher: Government funds that pay private-school tuition for a family. A different model than the privately funded §25F tax-credit scholarship.

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The EFTC / §25F glossary

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