North Carolina's Johnston County Schools votes to form its own §25F scholarship organization for its 37,000 students

Johnston County Public Schools wants a scholarship granting organization (SGO) of its own for the federal Education Freedom Tax Credit (§25F). At its regular meeting on November 10, the Johnston County Board of Education authorized district administrators to create a 501(c)(3) nonprofit that would receive donations under the credit and award scholarships to the district's students, The News & Observer reported on November 12. The Smithfield-based district had 37,289 students in 48 schools in 2023-24, according to the National Center for Education Statistics, which makes it North Carolina's seventh-largest. It's the second school board in the state we know of to vote for an SGO of its own, after Moore County's board approved an SGO foundation on October 12, and it serves nearly three times as many students.

Board members pitched it as a way for the community to back its own schools. “This is not Johnston County Public Schools or this school board asking for donations of $1,700 for an individual or up to $3,400 for a family,” board member Terry Tippett said before the vote. “This is something that could benefit a lot of people within Johnston County Public Schools.” Board member Michelle Antoine said giving would be a way for people “who love public schools and want to care for them and make sure they are successful” to show it. Tippett already has a use in mind: “The thing that is intriguing about it is it could possibly offer opportunities for tutoring sessions after school as well as providing the transportation for those students to get back home.”

What the board was shown. The presentation in the meeting packet, which cites a §25F toolkit from AASA, The School Superintendents Association, walked the board through the basics. A taxpayer gets a dollar-for-dollar credit of up to $1,700 for giving to an SGO. The SGO has to be a 501(c)(3), spend 90 percent of its income on scholarships, serve more than one school and appear on North Carolina's list. Then it put the open questions to the board: should the district take part, should it set up its own nonprofit, and if so, should it hire a director, who sits on the new board, and when to file for an EIN, 501(c)(3) status and North Carolina's tax exemption and licensing. The board's answer to the first two was yes. The rest is the work ahead.

Tutoring and a ride home, on the expense list. §25F scholarships pay for the K-12 costs on the section 530 list, and Tippett's example tracks it closely. Academic tutoring is on the list for a student enrolled at a public, private or religious school, with no further condition. Transportation and extended-day programs count when they're “required or provided by” the school, so a ride home from tutoring that the district provides fits the wording. Books, supplies, special needs services for a special needs student, and computer technology or internet access are on the list too. Treasury's more detailed guidance on qualified expenses hasn't been published. The money doesn't go to families as cash: under the proposed regulations, anything the school charges is paid directly to the school, an outside provider can be paid directly once the SGO has verified it, and a family can be reimbursed only against a receipt (proposed § 1.25F-3(c)(5)).

Who could get one. A student qualifies if household income is at or below 300 percent of area median gross income and the student is eligible to enroll in a public school. The district's slides put that cutoff at more than $300,000 for a Johnston County household. The exact figure depends on household size: the proposed rules tie it to the area median income figures used for Section 8 housing, which the IRS will publish each year (proposed § 1.25F-1(a)(4)). Because only cash income counts, Treasury and the IRS estimate that about 95 percent of school-age children would qualify (who qualifies), and the SGO has to verify income for every recipient (how SGOs verify income). The N&O reported that donors will be able to name the school they want their gift to support. Neither the statute nor the proposed rules prohibit a school preference, so that's the SGO's call; what no one can do is earmark a gift for a particular student (what donors can direct).

Building it as a district. A school district is a unit of government, not a 501(c)(3), so the SGO has to be a separate nonprofit, which is what the board authorized. Two design choices come up early. The first is who runs it. The SGO's officers and directors, anyone who helps choose recipients or set award amounts, and the family members of each can't receive its scholarships (proposed § 1.25F-3(d); the disqualified-person rules), which is worth weighing if district staff or board members take those seats. A parent who simply gives $1,700 isn't affected; a donor becomes disqualified only by giving more than $5,000 that is also more than 2 percent of the year's contributions. The second is the 90 percent rule. Keith Poston, president of the Wake Ed Partnership, told the N&O his group would like to fund scholarships for Wake County students but called a separate SGO “a big lift” for a nonprofit its size. The test runs on an organization's total income unless at least 85 percent of its activities are scholarship granting, in which case it applies to the §25F account (how the 85 percent safe harbor works), and each year's income can be spent through the end of the following year. A new nonprofit that does nothing but award scholarships, like the one Johnston County is setting up, is built to meet it.

The North Carolina calendar. The State Education Assistance Authority, which builds the state's list, adopted its SGO rules on October 30 and estimates that applications will open in late December and close in late January or early February. The list is due to the IRS by February 15, 2027. To be on it, an SGO has to be registered with the Secretary of State as a North Carolina nonprofit with a registered agent in the state. A new nonprofit can apply while its Form 1023 is still pending, as long as its exemption, once granted, is effective by January 1, 2027, so the district's nonprofit needs to be formed and filed before the year ends (the full calendar). The Authority expects to start working with interested applicants in early December, and questions go to SGO_NC@ncseaa.edu.

Who else is moving. Closer to Raleigh, a Wake County Schools spokesperson told the N&O the district has talked with an outside organization that wants to partner with it on the credit but has nothing formal for its board yet, and Chapel Hill-Carrboro City Schools said it has had internal conversations. Elsewhere in the state, Columbus County educators formed an SGO for their district's students. Nationally, Johnston County joins Sioux Falls, whose school board backed a district-wide SGO on November 9, the 41 Kentucky districts that signed with a statewide SGO, and the Denver parents forming a fund for three public schools. Gov. Josh Stein said in June that he sees “potential opportunities for public school students to benefit from this program” (Stein on public-school SGOs), and Johnston County is now building one.

What it means for donors and SGOs. A donor anywhere in the country can give to an SGO on North Carolina's list and claim up to $1,700 per taxpayer for gifts made from January 1, 2027, or $3,400 on a joint return when each spouse gives, under the proposed rules, which taxpayers may rely on for 2027 (how out-of-state giving works). Our guide to §25F for public schools covers what districts and their foundations can do, the free SGO Builder walks a new nonprofit through formation step by step, how to apply in North Carolina has the state's requirements, and the North Carolina page and North Carolina SGO page track the process.