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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.
Articles of incorporation: The document filed with a state's Secretary of State that legally creates a corporation. For a 501(c)(3) it must limit the organization's purposes to exempt ones and dedicate assets to charity on dissolution.
Bylaws: The internal rulebook a nonprofit's board adopts: how directors are chosen, how meetings and votes work, what officers do. Not filed with the state, but under the previewed §25F rules, states will check that bylaws (or articles) require the SGO rules.
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.
Chairperson: Not a separate job, the director who runs a given meeting: calls each agenda item, asks for the vote, keeps things moving. At a brand-new organization's first meeting it's usually the founder who convened it; once a president is elected, chairing board meetings is normally part of the president's role.
Charitable solicitation registration: State registration most SGOs must complete before fundraising in a state, typically renewed annually.
Conflict-of-interest policy: A board-adopted policy requiring directors and officers to disclose personal stakes in the organization's decisions and to step aside from votes where they have one. The IRS publishes a sample in the Form 1023 instructions and asks on the form whether you have one.
Coverdell ESA: A tax-advantaged education savings account under §530. Distinct from a state-funded Education Savings Account (ESA) and from a §25F scholarship.
Determination letter: The IRS letter recognizing an organization as tax-exempt under 501(c)(3), issued after Form 1023 approval. Donors, grantmakers, banks, and state SGO lists all ask for it.
Director minimum: The smallest board a state allows a nonprofit corporation to have, set by the state's nonprofit corporation act. Commonly three; some states (like Arizona, California, Delaware, Kansas, Virginia) allow one. Three-plus unrelated directors is the practical floor for charity credibility regardless.
Disbursement: Paying out scholarship funds, typically to schools, or as receipt-verified reimbursement for qualified expenses.
Dissolution clause: The articles provision saying that if the organization shuts down, remaining assets go to another charity or government body, never to insiders. The IRS organizational test expects it; writing it expressly is the safe path in every state.
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.
EIN (Employer Identification Number): The federal tax ID number every organization needs for banking, hiring, and IRS filings. Issued free and instantly by the IRS online application; any site charging for one is a middleman.
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.
Fiscal year: The 12-month accounting period an organization chooses (calendar year for most). It drives the Form 990 deadline: the 15th day of the 5th month after the fiscal year ends.
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.
Form 990: The annual information return exempt organizations file with the IRS: the 990-N postcard (receipts normally $50,000 or less), the 990-EZ (under $200,000 receipts and $500,000 assets), or the full 990. Public by law, and three straight missed years auto-revokes exemption.
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.
Incorporator: The person who signs and files the articles of incorporation. Their job ends once the board holds its first meeting and ratifies the formation.
IRS portal: A system Treasury says it plans to build, in phases, for SGO administration and reporting under §25F.
Minutes: The written record of a board meeting: who attended, what was decided, how votes went. Nothing to do with clock time, the name comes from 'minute' as in small ('my-NOOT'), i.e. brief notes. Kept permanently; auditors, banks, the IRS, and state vetting teams treat minutes as proof the board actually governs.
Motion: A proposal formally placed before a board for a vote, spoken as a sentence starting "I move that…". Nothing gets voted on at a board meeting until someone states it as a motion; the minutes then record it as a resolution if it passes.
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.
Organizational meeting: The first official board meeting after incorporation: adopt bylaws, elect officers, authorize the bank account and the 501(c)(3) application. Its minutes are the founding record everything else cites.
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.
Quorum: The minimum number of board members who must be present for a meeting's votes to count. Each state's nonprofit law sets a default (commonly a majority of directors) and how far bylaws may lower it.
Registered agent: The person or company with an in-state street address designated to receive legal papers for the corporation. Every state requires one; a board member at a real address works, or commercial services charge roughly $100 a year.
Renewal / sibling priority: Award priorities an SGO may apply, for example, continuing prior-year recipients and siblings of current recipients.
Second: The one-word reply ("Second.") a DIFFERENT board member gives after a motion, meaning "I agree this deserves a vote." A motion with no second dies without a vote, it's the board's filter against one-person tangents. Not needed on a one-person board.
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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