How the Federal Scholarship Tax Credit Could Shape Scholarship Funding and School Choice in MA

School leaders across the country are beginning to evaluate how a new federal Scholarship Tax Credit, scheduled to take effect January 1, 2027, could influence access to educational opportunities, enrollment patterns, and scholarship funding. For Massachusetts charter and independent schools, the program’s impact depends on a fundamental question that remains unanswered: whether Massachusetts will elect to participate.

The federal Scholarship Tax Credit, often referred to as the FSTC or §25F, would allow individual taxpayers to claim a nonrefundable federal tax credit of up to $1,700 for cash contributions made to qualified Scholarship Granting Organizations (SGOs). Those tax benefits are only available for contributions to SGOs that are listed by a participating state. As a result, Massachusetts’ decision will play a significant role in determining whether charter (public) and independent (private) schools, students, and families in the Commonwealth will benefit from the program and to what extent.

Where Massachusetts Stands on the Federal Scholarship Tax Credit

The federal government has established a process that allows states to make an advance election to participate in the program beginning in calendar year 2027. Additional guidance from the Treasury Department and IRS is expected and may provide further details and the process for identifying eligible Scholarship Granting Organizations.

As of July 2026:

• The Treasury Department and IRS have created a process that allows states to submit an advance election to participate using Form 15714.
• Further guidance, including deadlines and procedures for finalizing participation and submitting SGO lists, is expected.
• The IRS has identified 30 states that have filed advance elections to participate. Massachusetts is not currently among them.

How the Federal Scholarship Tax Credit Works

• The credit is available for cash contributions to Scholarship Granting Organizations (SGOs), which provide scholarships for elementary and secondary education expenses. To qualify for the federal tax credit, the SGO must appear on a participating state’s approved list for the applicable calendar year.
• Taxpayers across the United States may claim the federal credit for contributions made to eligible SGOs in participating states. Scholarship awards, however, are administered by the SGOs themselves and are subject to the organization’s requirements as well as any applicable state designations.

How the Federal Scholarship Tax Credit Could Affect MA Independent Schools

For independent schools, the most direct effects would likely relate to scholarship availability and the number of families able to access financial assistance. The extent of those impacts will depend on whether Massachusetts elects to participate and how eligible Scholarship Granting Organizations are structured and administered.

Scholarship funding if Massachusetts opts in: If Massachusetts elects to participate and lists SGOs that support private-school scholarships, additional funding could expand educational opportunities for families who may otherwise find private-school tuition out of reach. Independent schools with available capacity may experience increased interest from prospective students who qualify for scholarship support.

Fundraising and donor giving: The federal tax credit, combined with the SGO framework, could encourage new charitable giving directed toward scholarship programs. Independent schools may wish to evaluate how those developments could influence existing fundraising efforts, financial aid strategies, and relationships with scholarship-focused organizations.

Equity and access considerations: Depending on how SGOs establish eligibility criteria and award scholarships, the program could expand access for lower- and middle-income families. Some federal discussions have referenced eligibility thresholds as high as 300 percent of area median income, potentially extending scholarship opportunities beyond households that traditionally qualify for need-based assistance. The distribution of scholarship funds, however, may vary based on geography, school type, available funding, and the resources families have to navigate the application process.

Compliance and accountability: As scholarship programs grow, schools and SGOs may face increased expectations around transparency, documentation, reporting, and scholarship administration. Independent schools may want to monitor evolving requirements and consider how program participation could affect existing operational and compliance processes.

Considerations for Massachusetts Charter Schools

Charter schools operate within a different funding model than independent schools, so the effects of the federal Scholarship Tax Credit would likely be less direct. Even so, school leaders may want to monitor the program closely, as changes in family enrollment decisions could influence planning and resource allocation over time.

Enrollment considerations: Charter schools are public, tuition-free schools and therefore would not receive scholarship funding intended to offset private-school tuition. However, if some families choose educational options supported through SGO scholarships, even modest enrollment shifts could affect budgeting, staffing, and long-term planning. The extent of any impact would depend on participation rates, school choice decisions, and how state and local funding formulas respond.

Potential support for Charter School Programs: Some SGOs or philanthropic organizations may choose to support programs and services that benefit charter school communities, including tutoring, transportation, enrichment programs, or after-school initiatives. The extent to which charter schools could benefit from these opportunities would depend on SGO priorities, program design, and future state guidance.

Policy and Practical Considerations for Massachusetts

The future impact of the Federal Scholarship Tax Credit in Massachusetts depends largely on actions that have yet to be taken at the state level. For schools, families, and potential SGOs, the coming months may provide greater clarity as additional federal guidance is released and Massachusetts determines whether to participate.

MA participation and implementation: Massachusetts has not yet elected to participate in the program. As state leaders consider next steps and additional federal guidance is released, schools should continue monitoring developments that could affect implementation and eligibility. To become a covered state under the program, Massachusetts would need to file an advance election and subsequently identify eligible Scholarship Granting Organizations.

What happens if MA opts in or opts out: If Massachusetts elects to participate, in-state SGOs could become eligible to receive contributions that qualify for the federal tax credit, potentially expanding scholarship opportunities for Massachusetts students. If the Commonwealth chooses not to participate, Massachusetts-based SGOs would not be eligible for the program and students would not have access to scholarships administered through Massachusetts SGOs. Individual donors could still contribute to SGOs listed in participating states, subject to those organizations’ eligibility requirements and program rules.

What Schools Should Do Now

While Massachusetts has not yet decided whether to participate in the FSTC program, school leaders can begin evaluating how different outcomes could affect their organizations.

Independent schools: Start conversations with potential SGO partners, assess your school’s capacity to enroll scholarship-supported students, and consider how admissions, communications, and compliance processes may need to evolve if additional scholarship funding becomes available.

Charters and district leaders: While the FSTC is unlikely to provide substantial direct funding to charter schools, changes in school choice options could influence enrollment patterns over time. Charter leaders may wish to strengthen retention, outreach, and other programs that support family engagement while monitoring future program developments.

For now, school leaders have an opportunity to stay informed, evaluate potential scenarios, and prepare for a policy development that could influence the educational landscape in the years ahead.

Putting This Into Practice: Education Accounting and Advisory

AAFCPAs’ Education Practice serves independent schools, charter schools, charter management organizations, colleges and universities, special education schools, and education services organizations with integrated audit, tax, advisory, outsourced accounting, and compliance solutions. Drawing on decades of experience across the education sector, we help institutions navigate funding and regulatory complexity, strengthen financial operations, support strategic growth initiatives, address reporting and governance requirements, and plan confidently for the future.

These insights were contributed by David Kelleher, CPA, CGMA, Partner.

Questions? Reach out to our author directly or your AAFCPAs partner.

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