South Dakota will join the federal §25F scholarship tax credit: Gov. Rhoden opts in with an SGO channel already in place

On Friday, November 14, 2025, South Dakota Governor Larry Rhoden (Republican) announced at Saint Joseph Academy in Sioux Falls that the state will participate in the new federal tax credit for donations to scholarship-granting organizations, the program created under §25F. The credit is permanent, dollar-for-dollar, and worth up to $1,700 per taxpayer per year for contributions to qualified SGOs, and it becomes claimable beginning in January 2027. Framing the decision, Rhoden said his goal as governor is to “support innovation, not to stand in the way.” Rhoden, who took office in January 2025 after Kristi Noem's appointment to the federal government, made the commitment as states across the country weigh whether to opt in. South Dakota's status is tracked on the South Dakota state page and against every other state on our national participation map.

What sets South Dakota apart from most opt-in states is that it does not start from zero. Since 2016, the state has run the Partners in Education program, created by SB 159 and codified at SDCL Chapter 13-65, which channels contributions to scholarship-granting organizations that fund K-12 tuition for eligible families. It is important to be precise about the mechanism: the existing South Dakota program is an insurance-premium tax credit, meaning insurance companies, not individual income-tax filers, receive credits of up to 100 percent of their contributions, subject to a $5,000,000 annual statewide cap, and it is administered by the Division of Insurance within the South Dakota Department of Labor and Regulation. That is a different instrument from the new federal §25F individual credit, but it means the state already maintains an established SGO infrastructure, including a list of approved organizations that route donations into scholarships. The distinction between the two credits is the kind of state-versus-federal detail we unpack in our explainers.

The federal §25F structure is straightforward: a taxpayer who donates to a qualified SGO can claim a nonrefundable credit of up to $1,700 against federal tax, and the SGO turns those donations into K-12 scholarships for eligible families. To qualify, an SGO must be a 501(c)(3) public charity rather than a private foundation, and income limits apply to the families it serves. The exact mechanism of South Dakota's opt-in, whether through an IRS advance election filed by the state or through enabling legislation, was not specified in the coverage of Rhoden's announcement, a procedural step explained in our reporting on IRS Form 15714. What is clear is that South Dakota was later confirmed on the IRS roster of participating states published June 8, 2026 in IR-2026-76, which listed more than half the states and a per-taxpayer credit of up to $1,700.

For organizations weighing whether to receive credit-eligible donations in South Dakota, the head start matters. The state already has a working pipeline of approved scholarship-granting organizations under the Partners in Education program, so existing operators are well positioned to add the federal §25F channel rather than build donor-intake and scholarship-award machinery from scratch. They do not have to assemble that machinery alone: there is software purpose-built for running a §25F program end to end, and the current national landscape of organizations is catalogued in our SGO directory. The practical takeaway for donors is unchanged from every other state: the federal credit does not function until qualified SGOs are in place to receive contributions and award scholarships, and standing up that federal-side process is the next step before 2027.

South Dakota now joins a fast-growing group of states acting on the federal credit, from Virginia's early opt-in to Florida's and Colorado's. Its distinguishing feature is the pre-existing, insurer-funded scholarship channel that gives the state an unusual running start on SGO infrastructure, even though that older program operates through a different tax mechanism than the new individual credit. Whether South Dakota's established organizations move quickly to stand up the federal §25F side, and how robust a donor base they build before the January 2027 launch, is what will determine what families and donors in the state actually receive, and it is detailed on the South Dakota state page.