What Is a Scholarship Granting Organization (SGO)?

Scholarship granting organizations, explained

A scholarship granting organization is a charity in the middle of a three-way exchange:

1. Donors give money to the SGO, often to earn a state or federal tax credit.
2. The SGO reviews family applications, checks eligibility and awards scholarships.
3. Families use the scholarships for school costs: tuition, tutoring, curriculum, therapies and more. The SGO usually pays the school or vendor directly.

SGOs aren't new. States have run tax-credit scholarship programs through nonprofits for decades, under names like school tuition organization (Arizona), scholarship organization (Pennsylvania) and student scholarship organization (Georgia). What's new is the federal Education Freedom Tax Credit under Section 25F. Starting January 1, 2027, any U.S. taxpayer can give up to $1,700 to a qualifying SGO and take the whole amount off their federal tax.

What makes an SGO qualify for the federal credit

Section 25F sets a strict federal definition. An organization is an SGO for the federal credit only if it meets every one of these:

How the proposed rules fill in the details

Treasury published proposed rules on October 2, 2026. They aren't final yet, but SGOs may rely on them for 2027. Highlights:

• "Located in the state" means authorized to do business there and in good standing with state charity laws. A physical office isn't required, so multistate SGOs can be listed in several states, with a separate account per state.
• States can't add stricter rules. For example, a state can't limit which types of schools or expenses SGOs fund. SGOs can choose a narrower focus on their own, such as a lower income cap or a single subject.
• The 90% test generally uses total gross receipts. Under a safe harbor, a single-state SGO whose activities are at least 85% scholarship granting can measure it from its Section 25F account alone. The test must be met by the end of the year after the income is received.
• Income verification can use pay stubs, tax returns or W-2s. It can also use categorical eligibility: proof that a household member gets SNAP, TANF, WIC, Section 8 housing or SSI. Safe harbors also cover foster children and school-selected tutoring or special-needs services in low-income census tracts.
• Digital wallets. SGOs may use a "qualified digital wallet," a third-party platform where families submit purchase requests to preapproved vendors. That counts as verifying the money went to qualified expenses.
• Registration and reporting. SGOs register in an IRS SGO portal, issue each donor a unique donor number and send donor acknowledgements by January 31. They report contributions to the IRS and file an annual certification, attached to Form 990 for those that file one.

For families: how SGO scholarships work

If you're a parent, an SGO is who you apply to, not your state or the IRS.

• Who's eligible. Under the federal credit, a student must be eligible to enroll in a public K–12 school and live in a household with income at or below 300% of area median gross income for the prior year. Treasury estimates that covers about 95% of U.S. children. Each SGO can set a lower limit.
• What it can pay for. Tuition and fees, academic tutoring, special needs services, books, supplies, equipment, uniforms, transportation and computer technology or internet access used for school. These come from 26 U.S.C. 530(b)(3)(A). Treasury plans more guidance on expenses, including how "school" is defined under each state's law. That affects homeschool families.
• Who gets priority. Students who had a scholarship the year before, then their siblings.
• Taxes. Scholarships from an SGO for qualified expenses are excluded from the family's income under the new section 139K.
• Where to start. Check scholarships in your state. On Edulist you can save the products you hope to fund to your wishlist, then apply once to SGOs and programs that can pay for them. Each SGO decides its own awards.

For donors: why the SGO matters

Your credit depends on the SGO being on the IRS SGO list when you give. Beyond that, SGOs differ a lot in who they serve, what they fund and how fast they get money to families. Our guide to choosing a scholarship fund has a due-diligence checklist. If your state also has a tax-credit scholarship program, see which states opted in and the state guides linked there. Businesses should read business tax credit scholarships. The federal credit is for individuals only.

For organizations: how to become an SGO

If you run a nonprofit and want to receive federal tax-credit gifts:

1. Be a 501(c)(3) public charity. Under the proposed rules, a state can list an organization whose exemption is pending if the exemption will be retroactive to January 1 of the list year.
2. Get authorized to do business and solicit donations in each state you'll serve, and comply with its charity rules.
3. Confirm the state opted in. Only covered states submit SGO lists. For 2027, lists are due February 15, 2027. Each state sets its own application process within the federal limits.
4. Set up a separate Section 25F account for each covered state.
5. Build your processes: income verification, priority for returning students and siblings, no earmarking, disqualified-person checks and payment controls or a digital wallet.
6. Register in the IRS SGO portal as soon as possible. Without it you can't issue the donor numbers donors need to claim the credit.
7. Plan for reporting: acknowledgements by January 31, IRS contribution reports and the annual certification.

Edulist helps SGOs run scholarship programs. Families apply through one reusable application, and donors who pledge here can be introduced to you. Register your SGO to get started.

SGO vs. other school choice programs

For the family side of ESAs and vouchers, see our scholarships hub.

This page explains the statute and Treasury's proposed rules as of October 13, 2026. It is not legal or tax advice.