Pennsylvania's scholarship groups get ready for the federal §25F credit while Gov. Shapiro decides whether to opt in

Pennsylvania hasn't joined the federal scholarship tax credit yet, and its scholarship organizations are getting ready as if it will. Rob Delany, CEO of Business Leadership Organized for Catholic Schools (BLOCS), the state's largest private school scholarship organization, told PennLive in a report published November 9 that BLOCS has already put $2.5 million into helping private schools prepare for the program, piloting new donor recruitment and donation processing systems with them. Most of the 584 schools BLOCS serves are already going after the money, he said. “And so we're ready to serve them.” The decision belongs to Gov. Josh Shapiro, who has said he's “very open” to the credit and had not announced a decision as of November 10. For Pennsylvania students to receive scholarships in 2027, the first year of the credit created by §25F, the state has to file its advance election on IRS Form 15714 by January 1, 2027.

Built on 25 years of state credits. Pennsylvania's private schools have done this kind of fundraising before. Since 2001 the state has let donors redirect part of their state tax liability to private scholarship organizations, and the legislature has set a new cap 16 times in 25 years: the combined cap on its two main programs, the Educational Improvement Tax Credit (EITC) and the Opportunity Scholarship Tax Credit (OSTC), grew from $30 million in 2001 to $680 million this year, PennLive reported. BLOCS took in almost a third of all EITC contributions in the 2024-25 fiscal year. It has tripled its staff from 10 to 30 over the past two years and gone from roughly 30,000 scholarship students last year to nearly 42,000 this school year, Delany said, and it has spent the better part of two years preparing for the federal program. “And we're very, very committed to this,” he said. The Diocese of Pittsburgh, which runs 45 schools in six counties, has a federal tax credit waitlist on its website so donors can “be ready the moment it opens!” And at a congressional field hearing in Bethlehem on October 23, Nathan Benefield of the Commonwealth Foundation testified that Pennsylvania has 250 scholarship organizations “ready and eager to participate.” The federal credit runs on different rules from the state programs (how the two compare).

What staying out would cost. Keisha Jordan, president and CEO of the Children's Scholarship Fund Philadelphia, which has awarded more than 97,000 scholarships since 2001, mostly to Philadelphia students from low-income households, explained the stakes. Any taxpayer can claim the credit, but only scholarship organizations in participating states get the money. If Pennsylvania stays out, “then Pennsylvania taxpayers will still participate and get the credit, but the money will go to another state.” “The program is established. Do we want Pennsylvania kids to be able to access this funding? And that's both public and private school kids,” she said. State Sen. Anthony Williams, a Philadelphia Democrat and one of six senators who announced an opt-in bill in August, made the same case to Chalkbeat in October: “If we do not do this, the program will still exist. Folks who can write a check will write a check, and those resources will leave Pennsylvania.” Donors can claim a dollar-for-dollar federal credit of up to $1,700 per taxpayer, or $3,400 on a joint return when each spouse gives, under Treasury's proposed rules, which may be relied on for 2027. Unlike Pennsylvania's programs, the federal credit has no annual cap on the total; §25F limits what each taxpayer can claim. Benefield estimated that if 10 percent of eligible Pennsylvania taxpayers gave the maximum, about $700 million would go to Pennsylvania students, a figure he called “a projection, not a guaranteed amount.” Without an election, Pennsylvanians' gifts fund students in other states (how an opt-out moves the money out of state).

Why school administrators asked for a year. Public school leaders see a timing problem. “If it rolls out this year, public schools won't be ready,” said Sherri Smith, executive director of the Pennsylvania Association of School Administrators. “From a public school perspective, it would probably be in their best interest if the governor would delay one year to give them an opportunity to get their [scholarship granting organizations] into place so that they can benefit from the programs as well when it's initiated in Pennsylvania.” Many districts have foundations that collect private donations, she said, but most of them make classroom grants to teachers, help schools with curriculum and fund after-school programs rather than give scholarships to individual students. She also pointed to questions that are still open, including which expenses public school families can cover with a scholarship; PennLive reported that guidance isn't expected until the end of December. Treasury left the expense list to separate §530 guidance, which it calls “a high priority” (what's settled and what isn't). Public school students can receive scholarships on the same terms as private school students (what the credit allows for public school students).

What the rules say about district foundations. PennLive described the proposed rules as requiring at least 85 percent of an organization's activities to be scholarship related, and Smith said, “That eliminates a lot of the foundations that our schools have.” The rule works a little differently, and her conclusion mostly holds. For an SGO on one state's list, 85 percent is a safe harbor: if at least 85 percent of its activities are scholarship granting, the 90 percent spending test applies only to its separate §25F account. Below that line an organization can still be an SGO, but the test then runs on everything it takes in, so it must spend 90 percent of all its income on scholarships (proposed § 1.25F-3(c)(2); the 85% safe harbor). Only an SGO on two or more states' lists has to clear 85 percent outright. A foundation built around classroom grants can't spend 90 percent of its money on scholarships and keep making those grants, and Treasury acknowledged that the safe harbor “may require the formation of new organizations to conduct section 25F activities.” Treasury has asked for comments on whether 85 percent is the right number, and comments close December 1 (how to comment).

How districts elsewhere are handling it. Some form a new organization: Colorado's public school foundations are each forming a separate nonprofit to be the SGO, and Fort Wayne's schools foundation is preparing an SGO for Indiana's largest district. Others partner: 41 Kentucky districts have signed with one statewide SGO, where the district recommends students and the SGO makes the awards. Matt Elkin, a BakerHostetler lawyer who specializes in nonprofit and tax law, told PennLive that scale helps because the rules are complicated to comply with: “So we're seeing a lot of large SGOs that are developing relationships with lots of different schools.” Public schools in Rhode Island, Maryland and Illinois, none of which has opted in either, are lining up SGOs before their states decide.

Would a year's wait help districts? Under Treasury's temporary rules, opting in now doesn't close the door on districts that need more time. A state elects one calendar year at a time and sends a new list each year. If Pennsylvania joins for 2027 and stays in, its 2028 list goes to the IRS between October 1, 2027 and January 1, 2028 (temp. § 1.25F-5T(c)(3)(ii) and (c)(4)), so a district SGO formed during 2027 could seek a place on it, and in the meantime a district can work with an SGO that is already listed, as Kentucky's do. A state that sits out 2027 and joins later has to make its first election under IRS guidance that hasn't been written yet (temp. § 1.25F-5T(c)(3)(i)(B)(2)). Either way, Pennsylvanians can claim the credit in 2027 by giving to SGOs in participating states, where the scholarships follow the student's home state.

The decision is Shapiro's. His office said earlier this year that he would wait for Treasury's rules before deciding, and they came out on October 1. At the October 7 debate he said, “We're continuing to digest the federal regulations, but I've also expressed my openness to this,” and that the state has to make sure the federal program doesn't interfere with its own tax credit scholarship programs. “We're looking at it carefully, and in the next few weeks, we'll make our announcement.” On October 15 his spokesperson pointed Chalkbeat back to that answer. He won a second term on November 3, so the 2027 call is his, and the Washington Post editorial board urged him on November 1 not to pass it up. With no election filed, Pennsylvania has no SGO list process yet. If he opts in, the state has until February 15, 2027 to send the IRS its first list (the full calendar; how the opt-in works).

Who it would reach, and what's next. Scholarships would be open to any K-12 student who is eligible to enroll in a public school and lives in a household at or below 300% of area median gross income. FundEDU, a school choice group, estimates that covers a family of four earning up to $327,900 in Harrisburg or $368,100 in Philadelphia, PennLive reported; the IRS will publish the official limits. Treasury puts the eligible share at about 96% of children in participating states. Comments on the proposed rules close December 1, the public hearing is December 15, and Shapiro's deadline is January 1. Our Pennsylvania page will show his decision the day he makes it. Organizations that want to be ready can work through formation with the free SGO Builder, and district foundations can start with turning an existing nonprofit into an SGO.