Why Illinois should "Opt In" for Federal Scholarship Tax Credit Act

The new Federal Scholarship Tax Credit (FSTC) Act works by allowing individuals to get a dollar-for-dollar federal tax credit (up to $1,700/year) for donating to approved Scholarship Granting Organizations (SGOs) that provide K-12 scholarships for low-to-middle-income students, starting in 2027; states must opt-in, and SGOs use funds for tuition, books, etc., for both public and private school students, creating a first-ever federal K-12 scholarship program funded by private donations.

How it works for donors (Taxpayers)

• Donate to SGOs: Make a cash donation to a state-approved Scholarship Granting Organization (SGO).

• Claim credit: Receive a non-refundable federal tax credit for up to $1,700 per year, reducing your tax bill.

• State participation is key: The credit only applies in states that choose to participate in the program by identifying eligible SGOs.

• Nonprofit requirement: Must be a 501(c)(3) nonprofit.

• Scholarship focus: Must spend at least 90% of revenue on scholarships.

• Student eligibility: Must award scholarships to students from families with incomes below 300% of their area's median income (AMI).

• Funds usage: Provide scholarships for qualified expenses like tuition, books, tutoring, and transportation for public or private schools.

Key aspects

• Starts in 2027: Taxpayers can start claiming credits for the 2027 tax year.

• State-driven: Each state decides if and how it will participate.

• First federal program: It's the first federal scholarship tax credit, building on state-level programs.

What it is NOT

• It's not a direct government voucher program; it's funded by private donations. It's not an automatic benefit for everyone; it requires state and donor participation.