How to Become an SGO for the Federal Scholarship Tax Credit: Section 25F Requirements Explained

Where the rules come from

Section 25F was added to the tax code by the One Big Beautiful Bill Act (Pub. L. 119-21), signed July 4, 2025. It applies to tax years ending after December 31, 2026, so qualified contributions start January 1, 2027.

On October 2, 2026, Treasury and the IRS published two documents:

• Temporary regulations (T.D. 10057), effective December 1, 2026: state elections and SGO lists, SGO registration with the IRS, and donor acknowledgment and reporting.
• Proposed regulations (REG-117199-25): the full rulebook for SGOs, donors and states. Comments are due December 1, 2026; the public hearing is December 15, 2026.

What follows separates what the statute requires from what Treasury has proposed. Proposed rules can change.

Section 25F SGO requirements checklist

The 90% spending test in detail

The statute says an SGO must spend "not less than 90 percent of the income of the organization" on scholarships. Treasury proposes:

• Default: income means total gross receipts from all sources, on the cash method.
• 85% activity safe harbor: if at least 85% of a single-state SGO's activities are scholarship granting, it measures income using only its Section 25F account (qualified contributions plus earnings). Multistate SGOs measure each state's account separately.
• Timing: the test is met by the last day of the tax year after the year the income arrived.
• When money counts as spent: when paid. Multi-year awards count only when paid. Transfers to a qualified digital wallet count when transferred, if the SGO keeps no ownership.
• Refunds from schools or vendors are new income to spend by the end of the following year.

Eligible students and income verification

An eligible student is eligible to enroll in a public elementary or secondary school and lives in a household with income no greater than 300% of area median gross income for the prior calendar year. Treasury estimates about 95% of U.S. children meet that limit. The IRS plans to publish limits by area and family size.

The proposed rules allow four ways to verify:

1. Direct verification: pay stubs, prior-year tax returns, IRS transcripts, W-2s and evidence of other income.
2. Categorical eligibility: a dated award letter (within 12 months) showing someone in the household receives SNAP, TANF, WIC, Section 8 or SSI. School-wide free lunch status doesn't count.
3. Low-income-area tutoring and special-needs safe harbor: individual tutoring or special needs services at schools in qualified census tracts, for students the school selects by need.
4. Foster-child safe harbor.

Household income uses Section 8 housing rules, but the proposal ignores non-cash items like imputed returns on home equity. For shared custody, the relevant household is where the child lives longest.

How scholarship money may be paid

Under the proposed rules:

• School charges (tuition, fees, room and board) must be paid directly to the school, which must return overpayments.
• Other vendors may be paid directly if verified as appropriate providers, unrelated to the student, and required to return overpayments.
• Qualified digital wallets may be used: third-party platforms where families submit purchase requests, vendors are pre-approved, and payments go direct or require timely receipts.
• Families get money only as receipt-backed reimbursement after the SGO confirms the expense qualifies.
• Fraud controls must prevent paying the same expense twice from multiple sources.

Scholarships must also further the SGO's charitable purpose, so expenses should be reasonably necessary, not extravagant.

Registration, receipts and reporting

The temporary regulations require SGOs to:

1. Register in the IRS SGO portal with name, EIN, address, phone, year formed, a contact and tax year, ideally before appearing on a state list.
2. Generate a unique donor number for each donor using the IRS format. Donors report it on their returns.
3. Send each donor a written acknowledgment by January 31 of the next year, with your EIN, their total designated qualified contributions, their donor number and any goods or services provided.
4. Report to the IRS by February 28 each donor's name, address and total qualified contributions.
5. Authorize disclosure on the public IRS SGO list if you want donors to find you.

Donors must designate a gift as a qualified contribution when they give, and the designation can't be revoked. Digital assets don't count as cash.

State opt-in and listing timeline

States elect one year at a time. As of October 13, 2026, 31 states had opted in; track them at states opted in.

Your readiness checklist

• Board-approved scholarship policy covering eligibility, priority, earmarking and conflicts
• Segregated bank account (one per state if multistate)
• Income verification procedure and document retention plan
• Vendor verification process or a qualified digital wallet contract
• Duplicate-payment controls
• IRS SGO portal registration and donor-number process
• Donor acknowledgment template and February 28 reporting workflow
• Budget that keeps scholarships at 90% or more of measured income

Where Edulist fits

Edulist doesn't hold or move money and isn't a digital wallet. It gives your SGO a free front door: families apply once with reusable household and learner profiles, Edulist Match surfaces your program to families who fit your states, grades and income limits, your assigned reviewers approve or request information in one inbox, and donors can pledge to you for the credit. See scholarship management software for SGOs or register your SGO. This guide is general information, not legal or tax advice.