What does FSTC stand for?

FSTC stands for Federal Scholarship Tax Credit. The IRS uses this term in its official guidance and on the program's landing page, which is why it is the name you are most likely to encounter in government material rather than advocacy material.

Is the FSTC a deduction or a credit?

It is a credit. It reduces federal tax owed dollar-for-dollar rather than reducing taxable income, and it does not require itemizing. That makes its value independent of the taxpayer's marginal rate.

Is the Federal Scholarship Tax Credit refundable?

No. The FSTC is non-refundable. It can reduce a federal tax liability to zero but cannot produce a refund beyond that. Unused amounts carry forward up to five years.

Can a donor claim both the FSTC and a charitable deduction?

No. The statute bars a double benefit. A contribution that earns the §25F credit cannot also be deducted as a charitable contribution under §170 for the same gift.

When do the first FSTC claims appear on returns?

The credit applies to taxable years ending after December 31, 2026, so the first claims appear on 2027 returns filed in early 2028. Contributions made during calendar 2026 do not qualify for the credit.

What is the Federal Scholarship Tax Credit? The FSTC explained

Q: What is the Federal Scholarship Tax Credit?

The Federal Scholarship Tax Credit (FSTC) is the term the IRS uses for the federal individual income-tax credit at Internal Revenue Code §25F. It gives taxpayers a credit of up to $1,700 for cash donations to qualifying K-12 scholarship granting organizations, beginning with donations made on or after January 1, 2027.

TL;DR

Federal Scholarship Tax Credit (FSTC) is the IRS’s name for the credit at IRC §25F.
Up to $1,700 per return, claimed dollar-for-dollar against tax owed. No itemizing required.
Non-refundable, with a five-year carryforward.
Cash contributions only, and no double benefit with a §170 charitable deduction.
First claimable on 2027 returns, filed in early 2028.

Why the IRS uses this name

One program in this space carries four different names, and which one you meet depends on who is doing the writing. “Federal Scholarship Tax Credit” is the descriptive label the IRS adopted for its own guidance and program materials. It is plain and functional: a federal credit, for scholarships.

Congress did not use that phrase. The provision was enacted as part of the One Big Beautiful Bill Act (P.L. 119-21) at §70411, which added §25F to the Internal Revenue Code, and the underlying bill was the Educational Choice for Children Act. Advocacy organizations, meanwhile, market it as the Education Freedom Tax Credit.

If you are cross-referencing government guidance against advocacy material or news coverage and cannot tell whether they describe the same program, they do. The four names are mapped side by side here.

How it behaves as a tax item

The FSTC is an individual income-tax credit, not a business credit and not a deduction. Four characteristics determine most of its planning consequences:

Non-refundable. It offsets liability down to zero and no further. A taxpayer with no federal income-tax liability gets nothing from it in that year.
Five-year carryforward. Credit in excess of current liability is not lost; it carries forward for up to five years.
Cash only. Contributions of appreciated securities or other property do not qualify for this credit, which is a meaningful difference from ordinary charitable planning.
No double benefit. A gift that generates the §25F credit cannot also be claimed as a §170 charitable deduction.

The cap is $1,700 per return. Whether taxpayers married filing jointly are limited to $1,700 or may claim up to $3,400 has not been resolved by Treasury guidance. Until it is, $1,700 is the defensible planning assumption. Worked examples and the full donor mechanics are here.

Who can claim it

Individual taxpayers who make a qualifying cash contribution and who owe federal income tax. Because it is a credit rather than a deduction, it reaches filers who take the standard deduction, which is the large majority. The credit is federal, so a taxpayer’s ability to claim it does not turn on whether their state has opted into the program.

What state participation governs is the supply side: whether scholarship granting organizations in that state appear on the federal list, and therefore whether students there can receive scholarships funded by these contributions. See where each state currently stands.

What counts as a qualifying donation

The contribution must be cash, given to a qualifying scholarship granting organization that appears on its state’s submitted list. Those organizations operate under specific federal constraints: at least 90% of receipts must go to scholarships, no more than 10% may be retained for administration, and recipient households must generally be at or below 300% of area median gross income.

Substantiation runs through the organization. Treasury’s 2026 preview describes a unique donor number issued by the scholarship organization on a written acknowledgment, reported to the IRS, and carried onto the donor’s return, which lets the agency match a claimed credit to a real donor and a real organization.

Notes for tax professionals

The 2026-to-2027 boundary matters. A December 2026 gift earns no credit; the same gift in January 2027 does. Clients planning year-end giving should know the difference. The transition-year planning guide.
Withholding is an option. Clients do not have to wait for a 2028 refund; a W-4 adjustment can recover the credit across 2027 paychecks. How that works.
Watch the joint-filer cap. Do not represent $3,400 as settled. Treasury has not ruled, and the prevailing reading is $1,700.
Guidance is still landing. Proposed regulations were previewed in 2026 and the rules can move before the first filing season. The CPA-facing guide tracks what is settled and what is not.