The EFTC for after-school programs and youth organizations: what §25F allows

This guide is for leaders of after-school clubs, youth organizations and tutoring programs, and for the staff who advise them on policy. It covers what the federal Education Freedom Tax Credit (EFTC, IRC §25F) is, which of your students it can help, what it can pay for, how an organization like yours can take part, and what Treasury has not settled yet. Much of the detail sits in Treasury’s October 2026 proposed rules, which are not final, so each point below says whether it comes from the statute or from Treasury.

The credit in two sentences

An individual who gives cash to a scholarship granting organization (SGO), and designates the gift as a §25F contribution when making it, can take up to $1,700 a year off their federal income tax, dollar for dollar, for gifts made on or after January 1, 2027. The SGO, a 501(c)(3) public charity on a participating state’s list, turns those gifts into scholarships for K-12 students.

A few details shape how you talk about it with donors:

• The cap is per taxpayer. Under Treasury’s proposed rules, which taxpayers may rely on for 2027 gifts, spouses filing jointly are separate taxpayers, so a married couple can claim up to $3,400 when each spouse gives and designates their own gift.
• It’s nonrefundable. The credit can bring a donor’s federal income tax to zero but isn’t paid out beyond that. Unused credit carries forward for up to five years.
• Individuals only, cash only. Corporations can’t claim it, and a partner’s or S corporation shareholder’s share of the entity’s gift doesn’t count. Checks, cards, electronic transfers and after-tax payroll deductions are cash; stock and crypto are not.
• A gift to your organization isn’t a §25F gift unless your organization is itself an SGO on a participating state’s list. A gift to any other charity stays an ordinary charitable gift.

Which of your students qualify

Eligibility turns on the student. §25F(c)(2) never asks which school a child attends. It asks two things:

1. Is the student eligible to enroll in a public elementary or secondary school? A child enrolled in a public school plainly is.
2. Is household income at or below 300% of area median gross income for the calendar year before the application? Treasury’s proposed rules compute the limit with HUD’s Section 8 method, adjusted for family size, and the IRS will publish the figures each year. Treasury’s October 2026 fact sheet estimates that about 95% of American children live in households under the limit.

Nothing in that test requires attending a private school, so a public-school student in your program can qualify. Two rules on the SGO’s side decide whether one actually gets a scholarship. The student has to live in a state whose list includes the SGO, and the SGO has to verify the family’s income. Under the proposed rules it can do that with pay stubs, tax returns and similar records, or with a recent award letter showing a household member gets SNAP, TANF, WIC, Section 8 housing or SSI, and foster children qualify automatically. School-wide free or reduced-price lunch status does not count. Eligibility also doesn’t guarantee an award: each SGO decides its scholarships within the federal rules. The full rules are in our scholarship eligibility guide.

What a scholarship can pay for

§25F doesn’t write its own expense list. A scholarship can pay any expense of an eligible student “described in section 530(b)(3)(A)” (§25F(c)(4)), the list used for Coverdell education savings accounts. Treasury’s proposed rules keep that cross-reference, adding “and any guidance thereunder.” Four parts of the list touch a youth program:

• Academic tutoring, named in §530(b)(3)(A)(i) with books, supplies and other equipment, for expenses incurred in connection with the student’s enrollment or attendance at a public, private, or religious school. Neither the statute nor the proposed rules define “academic tutoring.”
• Special needs services for a special-needs student, also in clause (i).
• Extended day programs, in clause (ii): “supplementary items and services (including extended day programs) which are required or provided by a public, private, or religious school in connection with such enrollment or attendance.”
• Computer technology, equipment and internet access used by the student and family during the school years, in clause (iii).

Sports, summer camps, mentoring and field trips aren’t named on the list. The only food-related item, room and board, counts only when a school requires or provides it. Treasury hasn’t said any of these qualifies, so don’t promise them to families or donors. Treasury’s preamble mentions summer once, and only for timing: a student can get a scholarship the summer before the school year for expenses tied to enrolling in a school later that year.

Two more rules decide what actually gets funded. Each SGO picks which qualified expenses it pays for, and Treasury’s preamble says an SGO “may choose to specialize in providing one type of qualified expense,” giving academic tutoring for public-school students as the example. A state can’t narrow that choice: under Treasury’s temporary regulations, which take effect without a comment period and apply from September 1, 2026, a state may not require SGOs to operate more restrictively than §25F, “such as by limiting the type of school that scholarship recipients may attend or the types of qualified elementary or secondary education expenses.” Treasury’s preamble also reminds SGOs that, as public charities, they may fund only expenses “reasonably necessary to further the organization’s charitable exempt purposes.” Our qualified-expenses guide walks the whole list.

Three ways your organization can take part

Only an SGO can receive gifts that earn the credit. Your organization can still be part of the flow, and the options below can be combined.

1. Get paid as a provider

When a family’s scholarship covers a qualified expense you provide, such as academic tutoring, the SGO can pay for it. Treasury’s proposed rules (§ 1.25F-3(c)(5)) allow these routes:

• Direct payment from the SGO, if you have been “verified as an appropriate provider of such services or items,” you are “not related, directly or indirectly, to the scholarship recipient,” and you are required to pay back any overpayment or payment made in error.
• A qualified digital wallet: a third-party platform where families submit purchase requests, and the platform either pre-approves vendors and pays them directly or requires timely receipts.
• Reimbursement to the family, when the family pays you and gives the SGO a receipt proving the payment and that the expense qualifies. No other money may go to families.
• Payment to the school, for tuition, fees and similar charges the school bills. Those must go directly to the school.

The rules don’t spell out what verifying an “appropriate provider” involves, so ask each SGO you work with what it needs from you. Our explainer on the four ways an SGO can pay goes deeper.

If you tutor students at a school in a low-income area, one more rule may apply. Under the proposed rules, when the school selects students for individual academic tutoring based on need, and the school is in a HUD qualified census tract or certifies that at least 80% of its students live in one, the SGO doesn’t have to verify each family’s income. In exchange, the SGO needs an annual third-party audit certifying, among other things, that the tutors were qualified and that each student’s need was diagnosed by a professional not associated with the provider. Your own staff can’t be the ones who decide a student needs your tutoring. See our guide to the census-tract safe harbor and the school census-tract checker.

2. Partner with an SGO that serves your state

Raising §25F gifts, verifying income, awarding scholarships and paying providers is the SGO’s job. A partnership lets families in your program apply to an SGO that funds the kind of service you offer, and lets you point donors to it. Start with the organizations in our SGO directory, which lists organizations preparing for §25F by state. Know three rules going in:

• The SGO decides the awards. It picks recipients and amounts, with the statute’s priority for returning recipients and then their siblings. For tutoring or special-needs awards, the proposed rules let priority follow need instead.
• Helping choose recipients has a cost. Under the proposed rules, anyone who takes part in selecting scholarship recipients, including as a committee member, is a disqualified person, and so are their family members. If your staff help pick students, their own children can’t receive that SGO’s scholarships.
• Residence decides the SGO. A scholarship can go only to a student who lives in a state whose list includes the SGO. A program near a state line may serve students who need a different SGO.

3. Start an SGO

Some organizations will want to run scholarships themselves. Under §25F and Treasury’s proposed rules, an SGO must:

• be a 501(c)(3) public charity, exempt from tax, and not a private foundation;
• keep a separate §25F account holding only qualified contributions and their earnings;
• fund at least 10 students who don’t all attend the same school;
• award scholarships only to students who live in a state whose list includes it (an SGO on more than one state’s list keeps a separate account for each state);
• spend at least 90% of its income on scholarships for eligible students, by the end of the following year;
• be on a participating state’s SGO list, which requires being authorized to do business in that state and following its charity laws; and
• verify income and expenses, give no scholarships to disqualified persons, and file an annual certification and audit.

The 90% test is where most multi-program youth organizations run into trouble. Under the proposed rules, “income” means all of the organization’s gross receipts from every source, unreduced by expenses. The exception: if at least 85% of a single-state SGO’s activities are scholarship granting (counting the administration and fundraising that support it), the test applies only to its §25F account. An organization whose main work is running clubs, tutoring and other programs would usually fall below 85%, and would then have to spend 90% of everything it takes in, including program fees and grants for its other work, on scholarships. Treasury acknowledged that its rule “may require the formation of new organizations to conduct section 25F activities”. For most youth organizations, that means a separate nonprofit formed to grant scholarships. Our guide to turning an existing nonprofit into an SGO covers when retrofitting works and when it doesn’t. If the plan is for that SGO to pay for your own programs, read the open question on affiliated providers below first.

Timing matters for a new organization. A state may list an organization whose 501(c)(3) application is still pending only if the exemption, once granted, will be effective by January 1 of the list year, and not every state takes pending applicants. For a 2027 list, that means forming the organization by January 1, 2027 and filing its exemption application on time (see SGOs with a pending 501(c)(3)). The full sequence is in how to start an SGO.

Donors can’t pick a child

An SGO may not “earmark or set aside contributions for scholarships on behalf of any particular student” (§25F(d)(1)(E)), and Treasury’s proposed rules restate the ban. A pitch that promises a donor’s gift will reach a specific child in your program describes something the SGO isn’t allowed to do.

What a donor can point a gift toward is a separate question. Neither the statute nor the proposed rules bar a donor preference for a particular school, and our guide to designating gifts to schools covers how that works. The rules say nothing either way about a preference for a particular program or provider. Whatever the preference, the SGO still decides which eligible students receive scholarships. Large gifts carry one more limit: a donor who gives an SGO more than $5,000 and more than 2% of its contributions for the year becomes a substantial contributor under the proposed rules, and that donor’s family can’t receive its scholarships.

Timing: your state and the 2027 lists

None of this reaches a student unless the student’s state takes part. Each year the governor, or whoever state law designates, decides whether the state opts in, and the state submits its list of qualifying SGOs to the IRS. Elections are made one calendar year at a time. Under the temporary regulations, the 2027 schedule is:

• January 1, 2027: the state files its advance election on IRS Form 15714.
• February 15, 2027: the state submits its SGO list to the IRS. A state that doesn’t complete its election with a list by then has no qualifying SGOs for 2027.
• Each state’s own cutoff: participating states set their own application deadlines for SGOs, and some fall before the end of 2026.

For later years, the list is generally due by January 1 of the year it covers. State decisions are still moving, so check the live status on our state map before planning around a particular state, and see how to become an SGO in each participating state for every state’s application link, deadline and checklist.

What’s still open

Treasury’s rules answer a lot, but several questions that matter to youth programs are still unsettled:

• What makes an extended day program qualify. The statute’s “required or provided by” a school wording, Treasury’s “qualifying extended day programs,” and the meaning of “school” all wait on the separate §530 guidance, which has not been issued.
• What counts as academic tutoring. Neither the statute nor the proposed rules define it. The census-tract safe harbor says “individual academic tutoring” without setting a group size or session frequency.
• How a provider gets verified. The proposed rules require an SGO to verify a vendor “as an appropriate provider” before paying it directly, but don’t say how.
• Affiliated providers. The rules don’t say whether an SGO may pay programs run by an organization affiliated with it. The vendor test looks at whether the provider is related to the student, not to the SGO, and the preamble reminds SGOs that the charity-law bar on more than incidental private benefit still applies. Get your own tax counsel’s view before building a plan around it.
• Final rules. The proposed rules are not final. Taxpayers, SGOs and states may rely on them for contributions made on or after January 1, 2027, if they follow them in their entirety and consistently. Comments are due December 1, 2026, a public hearing is scheduled for December 15, 2026, and the final rules could change any of this.
• Which states take part. Several states are still deciding for 2027, and the January 1, 2027 election deadline hasn’t moved.

Governors have pressed Treasury on some of these. Five of them asked in October which tutoring, after-school and summer expenses qualify; we checked what the published rules already say about each of their questions.

Frequently asked questions