TL;DR
- Every §25F scholarship must go to a household at or below 300% of area median gross income (AMGI), the same AMGI measure used in IRC §42. There is no single national dollar figure, AMGI is set locally by HUD and varies by county and family size.
- The duty to verify sits with the SGO, not the family. Section 25F(d)(1)(F) requires the organization to verify household income and family size and to limit awards accordingly, that’s a qualifying requirement for the SGO itself, not a formality.
- Income is measured for the calendar year before the application, not the award year.
- Which documents an SGO collects (tax returns, W-2s, pay stubs) is operational practice, shaped by Treasury’s preview of the proposed regulations, not a statutory checklist.
- Verification records need to survive an audit. Treasury’s preview points toward an annual third-party audit requirement, so a file that can’t reconstruct how an award was verified is a real risk to an SGO’s qualifying status.
Confirming a family is eligible is one of the requirements an organization must meet to be a Scholarship Granting Organization at all, alongside the 90/10 rule and the rest of §25F(d). This is the practical walkthrough: what the income test actually measures, what documents establish it, how to right-size an award once a family qualifies, and how to keep records that hold up later. For the eligibility rules from the family’s side, see who qualifies and what’s covered; the statutory text is at IRC §25F.
What area median gross income means
Section 25F(c)(2)(A) defines an eligible student as someone whose household income, for the calendar year before the scholarship application, is not greater than 300% of the area median gross income (AMGI), as that term is used in IRC §42 (the Low-Income Housing Tax Credit). That borrowed definition matters: it means AMGI is not a single federal number. It comes from HUD’s annually-published Area Median Income tables, broken down by county or metro area, and adjusted for family size.
Two things follow from that. First, “area median gross income” is not the federal poverty level, and it’s not a flat national median income either, it’s local median income, multiplied by three. Second, because area medians differ so much by geography, the same household income can clear the bar in a high-cost metro area and fall short of it in a lower-cost region, or the reverse. There is no dollar figure an SGO can post once and reuse everywhere it operates; the threshold has to be looked up for the applicant’s specific county and household size, and it changes when HUD updates the tables.
Which year’s income counts
The statute measures income for “the calendar year prior to the date of the application for a scholarship,” not the year the scholarship is awarded or used. A family applying in 2027 is assessed on 2026 household income; a 2028 application looks at 2027 income, and so on. That fixed look-back year is what makes the test objective: it doesn’t move if a family’s income changes between application and award, and it gives the SGO a specific tax year of documentation to request rather than an estimate of “current” income.
What establishes household income
Section 25F(d)(1)(F) requires the SGO to verify, but the statute doesn’t itself list what counts as proof. Treasury’s June 2026 preview of the proposed regulations described the direct documentation route most SGOs are expected to lean on:
- Federal tax returns (Form 1040 and schedules) for the applicable prior calendar year
- W-2s and other wage statements
- Recent pay stubs, typically used to fill gaps or corroborate a return
- IRS wage and income transcripts, useful when a family didn’t file a return or documents are unavailable
- Commercial income-verification data sources, which Treasury’s preview also named as an acceptable input
None of that is a statutory checklist, it’s the operational practice Treasury has signaled it expects, and each SGO publishes its own specific document requirements within that framework. An SGO also has to verify family size, not just income, since the 300% AMGI threshold itself is adjusted for household size, a family of five and a family of two in the same county face different dollar cutoffs on the same AMGI table.
Categorical eligibility and the foster safe harbor
Treasury’s preview also described two shortcuts that avoid a full document review in specific cases:
- Categorical eligibility, where a household member’s participation in a needs-based federal, state, or tribal program (the kind of program that already has its own income-tested enrollment) can stand in for a fresh income review.
- An automatic safe harbor for foster children, recognizing that a foster placement’s legal or financial structure doesn’t map cleanly onto a household income test.
These are previewed, not finalized, the proposed regulations are due by the end of September 2026. SGOs building an application process now should design for direct documentation as the default path and plan to add these shortcuts once the rules publish, rather than waiting on them.
Right-sizing the award
Passing the 300% AMGI test tells an SGO a family is eligible, it doesn’t tell the SGO how much to award. Nothing in §25F requires an award to match a family’s unmet need dollar for dollar, but stretching scholarship dollars deliberately is good stewardship, and it interacts directly with the 90/10 rule: every dollar awarded above what a family actually needs to cover qualifying expenses is a dollar not available to the next eligible applicant.
Practical right-sizing questions
- What are the family’s actual qualifying expenses for the year, tuition, tutoring, a specific therapy, a device, and what portion is already covered by another source (a school discount, a state credit program, another scholarship)?
- Does the household sit well under the 300% AMGI line, or close to it? Many SGOs weight awards toward the lower end of the eligible range even though the statute doesn’t require it, since there is no statutory priority for lower-income families over higher-income (but still eligible) ones beyond the mandatory renewal and sibling order.
- Is this a renewal or a new applicant? Renewal and sibling priority are mandatory under §25F(d)(1)(D) before any award-sizing discretion comes into play.
Keeping records that survive an audit
Treasury’s preview points toward an annual third-party audit requirement for SGOs. That changes what a verification file needs to contain: not just a yes/no eligibility determination, but a reconstructable record of how the SGO reached it.
- Keep the source documents, not just a summary spreadsheet: the tax return, W-2, or transcript actually reviewed, tied to the specific applicant and the specific calendar year it covers.
- Record the AMGI figure used, the HUD table, county or metro area, and family size applied, and the date it was looked up. AMGI tables update annually; an auditor will want to see which year’s table backed a given determination.
- Log who verified and when, verification isn’t self-attestation, so the file should show a staff member or system reviewed the documents against the threshold, not just that documents were received.
- Re-verify on a set schedule rather than indefinitely, income changes, and a scholarship running for years on a stale verification is exactly the kind of gap an audit will flag.
- Separate the verification record from award accounting, but keep them linkable, an auditor testing the 90/10 ratio and an auditor testing eligibility compliance are asking different questions, and the file should answer both without being the same document.
Where this stops being a spreadsheet problem: verifying income for every applicant, at volume, on a schedule, with a record that survives an audit, is exactly the kind of repetitive, document-heavy work that blows past the 10% administrative cap when done by hand. SGO Software builds income verification into the same pipeline as applications, awards, and disbursement, so the audit trail exists by default instead of by cleanup.
sgosoftware.com →Statutory duty vs. operational practice
It’s worth keeping the two layers separate, because only one of them is fixed by federal law:
- Fixed by statute: the 300% of AMGI ceiling (§25F(c)(2)(A)), the SGO’s duty to verify household income and family size and limit awards accordingly (§25F(d)(1)(F)), and the prior-calendar-year measurement window.
- Operational practice, not statute: which specific documents an SGO accepts, how it verifies family size, its re-verification cadence, and how it sizes an award once eligibility is established. These are shaped by Treasury’s preview and will firm up once the proposed regulations publish, but each SGO sets its own process today within that framework.
Once a family is verified and an award is set, the money still has to move, and move cleanly. See how SGOs disburse scholarship funds to schools and families, and for the full compliance calendar these obligations sit inside, the SGO compliance calendar.
Frequently asked questions
How do SGOs verify income?
Section 25F(d)(1)(F) requires the Scholarship Granting Organization itself to verify each applicant's annual household income and family size and to limit awards to households at or below 300% of area median gross income (AMGI). The statute puts the verification duty on the SGO, not on the family self-attesting. In practice, most SGOs do this by collecting income documents (tax returns, W-2s, pay stubs) at application, though the specific documents accepted are an operational choice, not something the statute lists.
What income qualifies for a scholarship?
A household qualifies if its income for the calendar year before the application is at or below 300% of area median gross income (AMGI), the same AMGI measure used in IRC §42, the Low-Income Housing Tax Credit. That is a much broader cutoff than a poverty-line test: 300% of AMGI reaches well into middle-income households, especially in higher-cost areas. There is no single national dollar figure, the threshold is set by HUD's published Area Median Income tables for the family's county or metro area, adjusted for household size.
What is 300% of area median gross income?
It's the eligibility ceiling written into §25F(c)(2)(A): a household income no greater than three times the area median gross income (AMGI) for that household's location and size, as AMGI is used in IRC §42. Because AMGI is set locally, the same family income can qualify in a high-cost metro area and fall short of qualifying nowhere, in practice the 300% multiplier keeps the test generous almost everywhere it's applied. See our guide to full eligibility rules for the complete picture.
Is there a specific list of documents SGOs must collect?
Not in the statute itself. §25F(d)(1)(F) requires verification but does not name specific documents. Treasury's June 2026 preview of the proposed regulations described three likely routes: direct income documentation (pay stubs, tax returns, IRS transcripts, W-2s, or commercial data sources), categorical eligibility based on a household member's participation in a needs-based federal, state, or tribal program, and an automatic safe harbor for foster children. Until the final regulations publish, each SGO sets its own document checklist within that framework.
Does a family have to reapply and reverify income every year?
The statute requires the SGO to verify income at the time a student applies for a scholarship, and separately imposes a renewal priority (§25F(d)(1)(D)) for students who received an award the prior year. SGOs generally treat both together: a light-touch renewal check for continuing families, and a full re-verification on a set schedule (annually, or whenever income appears to have changed) so an award isn't running years past a household's eligibility.
Can an SGO award a scholarship above what a family's gap actually is?
Nothing in §25F bars an award larger than a family's unmet need, the statute's dollar test is an eligibility gate (at or below 300% of AMGI), not an award-sizing formula. But right-sizing awards to the family's actual gap is sound stewardship under the 90/10 rule: every dollar an SGO can stretch across more eligible students is a dollar that doesn't have to be raised twice.
What happens if an SGO can't prove it verified income?
Income verification is one of the requirements in §25F(d)(1) that a Scholarship Granting Organization must satisfy to qualify as an SGO in the first place. An SGO that awards scholarships without verifying, or without records to show it verified, risks its qualifying status and the annual audit Treasury's proposed rules are expected to require. Documentation isn't paperwork for its own sake, it's the evidence the SGO actually met a statutory eligibility gate.
Is a household's income based on the parents' income or the student's?
Household income, not the student's own earnings. §25F(c)(2)(A) ties eligibility to the income of the household the student is a member of, and §25F(d)(1)(F) requires the SGO to verify both household income and family size, since the 300% AMGI threshold itself is adjusted by family size.
