Business Tax Credit Scholarships: Where Companies Can Redirect State Tax to K–12 Scholarships
Updated · By Edulist · 18 sources
How business scholarship tax credits work
In a business tax credit scholarship program, a company gives to a state-approved nonprofit, called an SGO, STO or scholarship organization depending on the state. The company then takes a state tax credit for some or all of the gift. The nonprofit turns the money into K–12 scholarships. For the business, it's often close to cost-neutral: tax it would have paid to the state goes to students instead.
Most programs share a few traits:
- A statewide cap. Credits are limited each year, and popular programs run out fast.
- Preapproval. The business, or the nonprofit on its behalf, reserves credits before giving.
- A deadline to give after approval, often 30 to 120 days.
- Pass-through rules. Many states let S corporations, partnerships and LLCs pass credits to owners.
Business scholarship credits by state, October 2026
This table summarizes each program's business side. Rules change often, so follow the link to each state's donor guide for sources and details.
| State | Business credit | Business limit | Statewide cap | Approval |
|---|---|---|---|---|
| Pennsylvania EITC/OSTC | 75%, or 90% with a two-year commitment | $750,000 per program per year | Set by the state budget | DCED applications; renewals May 15, others July 1 |
| Florida FTC | 100% against corporate income, insurance premium, beverage excise, oil and gas and direct-pay use taxes | Up to the approved allocation | Annual statutory cap | Department of Revenue allocation before giving |
| Arizona corporate STO | 100% of the preapproved gift | Up to the preapproved amount | $110M low-income; $6M disabled/displaced (per fiscal year) | STO files preapproval with ADOR |
| Georgia QEE | 100% of the preapproved gift | 75% of liability for C corps; $25,000 per pass-through owner | $120M for 2026, $150M from HB 328 | DOR preapproval; caps have filled in early January |
| Alabama | 100% | Up to 100% of corporate liability | $40M per year, with automatic increases up to $60M | Reserve in My Alabama Taxes |
| Oklahoma | 50%, or 75% with a two-year commitment | $100,000 per business | $25M for SGOs, plus $25M for public school grant organizations | Through the organization |
| Virginia | 65% | No per-donor limit for businesses | $25M per fiscal year | Preauthorization from the Department of Education |
| South Carolina | 100%, up to 75% of liability | 75% of liability | $12M per year | Pledge order through Exceptional SC |
| Rhode Island | 75%, or 90% with a two-year plan | $100,000 per business | $1.6M per fiscal year | Division of Taxation approval; give within 120 days |
| Iowa | 75% | Up to the STO's certificate allotment | $20M per year | Through the STO |
| Kansas | 75% against income, privilege or premium tax | Credit on up to $500,000 of gifts | $10M per year (reached in 2025) | SGO allocates with the Department of Revenue |
| Indiana | 50% against income, financial institutions or insurance premium tax | None | $18.5M per fiscal year | Running total at the Department of Revenue |
| Louisiana | Credit for the part of the gift used for scholarships (at least 95%) | Up to the tax owed | No statewide cap | Department of Education receipt |
| Montana | 100% | $200,000 per entity | $7.2M in SSO credits for 2026 | Education Donation Portal, opens third Wednesday of January |
| Arkansas | 100% | Up to the tax owed | $6M per year, can grow 5% | First come, first served |
| Missouri MOScholars | 100% against income or express company tax | 50% of Missouri liability | About $75M per year, adjusted annually | First come, first served, January 1 to August 1 |
| Utah Carson Smith | 100% of the certificate amount | Up to the tax owed | Program cap set by the State Board of Education | Certificates in the order gifts arrive |
| Nevada | Credit against the Modified Business Tax | Up to the approved amount | $6.655M per fiscal year | Department of Taxation approval; give within 30 days |
| New Hampshire | 85% against business profits or business enterprise tax | 10% of the program cap | $5.1M per program year | Apply by May 31 |
| South Dakota | Up to 100% against the insurance premium tax | Up to the SGO's allocation | $5M per fiscal year | Insurance companies only |
| Ohio | 100% for pass-through owners | $750 total for all owners of an entity | No cap in the statute | None |
Pass-through owners: state credit, yes; federal credit, no
This is the point business owners most often miss. Many states (Alabama, Georgia, Iowa, Montana, Ohio, Pennsylvania, Virginia and others) let a pass-through entity's credit flow to its owners. The federal credit doesn't work that way.
Under Treasury's proposed rules (October 2, 2026), the federal credit is limited to individuals giving directly to an SGO. A partnership's or S corporation's gift "may be treated as a separately stated charitable contribution under section 170," but it "is not a qualified contribution made by the partner or S corporation shareholder for purposes of section 25F." C corporations can't claim the federal credit at all.
So a business owner who wants both should give in two ways:
- Through the business for the state program, where business gifts are allowed or required.
- Personally, up to $1,700 per spouse, for the federal scholarship tax credit, starting January 1, 2027.
Because the business gift isn't a federal qualified contribution, the state credit it earns doesn't reduce your federal credit. The federal credit is reduced only by state credits on your own qualified contributions.
Worked example: an S corporation owner in Alabama
Dana owns an Alabama S corporation and files jointly with her spouse. Alabama lets the credit from an S corporation's gift pass through to its owners. Individuals and couples can use up to $100,000 a year, limited to their Alabama income tax.
| Gift | Amount | Credit |
|---|---|---|
| S corporation gift to an approved Alabama SGO, reserved in My Alabama Taxes | $20,000 | $20,000 passed through to Dana, against her Alabama income tax |
| Dana's personal qualified gift to a listed SGO, 2027 | $1,700 | $1,700 off federal tax |
| Spouse's personal qualified gift, 2027 | $1,700 | $1,700 off federal tax |
The S corporation's gift doesn't count toward any federal credit, even if the SGO is on Alabama's federal list. Because of that, its Alabama credit doesn't reduce the couple's federal credits. If Dana's personal gifts also earned an Alabama credit, that state credit would be subtracted before the $1,700 federal cap. The Alabama guide walks through the options.
How to plan a business gift
- Check the calendar. Several caps fill on the first day: Georgia in early January, Montana's portal on the third Wednesday of January, Pennsylvania renewals from May 15 and new applicants July 1, Nevada each July 1. Put the date on your calendar now.
- Pick the organization first. Most applications name the receiving SGO or STO. Many organizations file the paperwork for you.
- Confirm your tax type. Credits often apply only to certain taxes: corporate income, insurance premium, financial institutions, Modified Business Tax and so on.
- Give on time. Approval letters come with a deadline, from 30 days (Nevada) to 120 days (Rhode Island).
- Coordinate with owners. Decide whether the credit stays with the entity or passes through, and plan owners' personal federal gifts separately.
- Ask your tax professional how the state credit affects any federal charitable deduction for the business.
If your state isn't listed
Businesses in states without a program can't get a state credit, but owners and employees can still claim the federal credit personally by giving to an SGO listed in any state that opted in. Employers can also encourage it. The proposed rules count after-tax payroll deduction as cash for the federal credit, so a workplace giving campaign can help employees reach $1,700 each.
About Edulist
Edulist doesn't take donations. Businesses and individuals give directly to the SGO. Edulist records pledges and introduces donors to SGOs with families waiting. Read what a scholarship granting organization is, or pledge your personal gift.
This page summarizes state programs and Treasury's proposed federal rules as of October 13, 2026. It is not tax advice. Program caps and windows change every year. Confirm with the state agency and your tax professional before you give.
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Sources
- CPA Practice Advisor, 19 states offer tax credits for private school scholarship donations (February 10, 2026)
- Treasury and IRS, Federal Scholarship Tax Credit proposed rules, part II.D (October 2, 2026)
- Pennsylvania DCED, Educational Improvement Tax Credit (EITC)
- Pennsylvania DCED, Opportunity Scholarship Tax Credit (OSTC)
- Florida Department of Revenue, Florida Tax Credit Scholarship Program
- Arizona Department of Revenue, Credits for contributions to certified school tuition organizations
- Georgia Department of Revenue, Qualified Education Expense credit preapproval
- Alabama Department of Revenue, Alabama Accountability Act
- Indiana DOR Income Tax Information Bulletin #108
- Rhode Island General Laws 44-62-2, scholarship organization tax credits
- New Hampshire RSA 77-G:3, education tax credit
- Nevada Revised Statutes chapter 363B (Modified Business Tax credit)
- South Dakota Codified Laws 13-65, Partners in Education Tax Credit
- Kansas Statutes 72-4357, tax credit for low income students scholarship program
- Code of Virginia 58.1-439.26, Education Improvement Scholarships tax credits
- Missouri State Treasurer, MOScholars tax credits
- Utah Code 59-7-625, corporate credit for Carson Smith Opportunity Scholarship donations
- Ohio Revised Code 5747.73
Questions
Can a business claim the federal scholarship tax credit?
No. Section 25F gives the credit to individuals. Treasury's proposed rules add that a gift made by a partnership or S corporation isn't a qualified contribution of its partners or shareholders, even though it may pass through as a charitable deduction. Owners who want the federal credit should give from personal funds.
Which state has the biggest business scholarship credit?
By program size, Florida and Pennsylvania are among the largest. Florida's credit is 100% against several business taxes, and Pennsylvania's EITC and OSTC allow up to $750,000 per business per program. Arizona's corporate low-income credit pool is $110 million a year. Size matters less than whether credits are still available when you apply.
Do I need preapproval before my business gives?
In most states, yes. Florida, Arizona (corporate), Georgia, Pennsylvania, Rhode Island, Nevada and New Hampshire require an allocation or approval before you give, and some caps fill in days. Give without approval and you may get no credit.
Is a business scholarship gift also a federal charitable deduction?
Possibly, but a 2019 Treasury regulation generally reduces a charitable deduction by state tax credits received, with a separate safe harbor for business payments. The answer depends on your entity type and state. Ask your tax professional.
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