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The EFTC / §25F glossary

Plain-English definitions of the terms that come up around the federal scholarship tax credit (§25F) and Scholarship Granting Organizations, for donors, families, and operators. Search or skim.

$1,700 cap: The maximum §25F credit, set at $1,700 'to any taxpayer.' Treasury's proposed regulations treat spouses filing jointly as separate taxpayers, so a joint return can claim up to $3,400 when each spouse gives; taxpayers may rely on that rule for 2027.
§25F (Section 25F): The section of the Internal Revenue Code that creates the federal scholarship tax credit. Added by the One Big Beautiful Bill Act in 2025; it applies to taxable years ending after December 31, 2026, so contributions made in 2027 and later. Treasury and the IRS issued proposed and temporary regulations under it on October 1, 2026.
§25F segregated account: The separate account an SGO must keep exclusively for qualified contributions and their earnings. Every designated gift goes in, whether or not the donor ends up claiming a credit, with its own complete books and records. A multistate SGO keeps one account per state. Under Treasury's 85 percent safe harbor, an SGO whose activities are at least 85% scholarship granting measures the 90% test against this account; a multistate SGO meets the test separately for each state's account.
300% AMI / AMGI (Area Median Gross Income): The income ceiling for scholarship eligibility: 300% of the area's median gross income, an area-specific figure adjusted for family size, not a single national number. Treasury's proposed regulations compute it the way HUD does for Section 8 housing, count everyone living with the student as the household, and say the IRS will publish the figures annually in the Internal Revenue Bulletin (not yet published as of October 1, 2026).
501(c)(3): The federal tax-exempt charitable status an SGO must hold to operate.
§530 (Coverdell rules): The Code section §25F cross-references to define qualifying expenses and what counts as a 'school', which sends part of that definition back to each state's law.
85 percent safe harbor: A rule in Treasury's proposed regulations: if at least 85% of a single-State SGO's activities are scholarship granting (§25F, state tax-credit, or other scholarships, plus the administration, fundraising, and compliance that support them), it applies the operating tests, including the 90% test, to its §25F account rather than to the whole organization, and the 90% base becomes the account's contributions and earnings. The 85% activity test is separate from the 90% spending test. Multistate SGOs must meet the 85% level in all cases. Treasury asked for comments on how to measure activities and whether 85% is the right line.
90/10 rule: §25F requires an SGO to spend at least 90% of its income on scholarships, which leaves at most 10% of that income for everything else. Under Treasury's proposed regulations, income means total gross receipts from all sources (cash method, before expenses), and each year's 90% must be spent by the last day of the following taxable year; an SGO using the 85 percent safe harbor applies the test to its §25F account instead.
Administrative cap: Shorthand for the share of income the 90% test leaves for operations and administration: at most 10%. It is a consequence of the spending test, not a separate rule. An SGO using the 85 percent safe harbor measures the test on its §25F account alone, so money it receives outside that account is not in the 90% base.
AMT (Alternative Minimum Tax): A parallel federal tax calculation. Treasury's proposed regulations confirm the §25F credit is allowed against both regular tax and the AMT (the taxes imposed by sections 1 and 55(a)).
Annual SGO audit: Under Treasury's proposed regulations, every SGO gets a yearly financial and programmatic audit and gives the results to each state that lists it. An organization with total receipts over $500,000 must use an independent professional or accredited body; one at $500,000 or less may use a committee of independent persons unrelated to management, signing under penalties of perjury.
Anti-earmarking: Donors cannot designate their contribution for a specific student or family.
Articles of incorporation: The document filed with a state's Secretary of State that legally creates a corporation. For a 501(c)(3) it must limit the organization's purposes to exempt ones and dedicate assets to charity on dissolution.
Bylaws: The internal rulebook a nonprofit's board adopts: how directors are chosen, how meetings and votes work, what officers do. Not filed with the state, but under the §25F temporary regulations a state listing a new SGO checks that its bylaws (or other governing documents and policies) require the SGO rules.
Carryforward: Credit you can't use this year because it exceeds your tax liability can be carried forward for up to 5 years. What carries forward is unused credit, never gifts above the $1,700 cap. Under Treasury's proposed regulations, carryforwards are used oldest first, before the current year's credit.
Categorical eligibility: A way to verify income without reviewing it directly: an award letter, dated within the last 12 months, showing someone in the student's household currently receives SNAP, TANF, WIC, Section 8 housing, or SSI. Under Treasury's proposed regulations only those five programs count; school-wide free or reduced-price lunch and Medicaid are not on the list, and Treasury asked for comments on adding state and tribal programs. Foster children are covered by a separate safe harbor.
Chairperson: Not a separate job, the director who runs a given meeting: calls each agenda item, asks for the vote, keeps things moving. At a brand-new organization's first meeting it's usually the founder who convened it; once a president is elected, chairing board meetings is normally part of the president's role.
Charitable solicitation registration: State registration most SGOs must complete before fundraising in a state, typically renewed annually. Complying with a state's general charity laws is part of being 'located in' that state under Treasury's temporary regulations, which is a condition of appearing on its SGO list.
Conflict-of-interest policy: A board-adopted policy requiring directors and officers to disclose personal stakes in the organization's decisions and to step aside from votes where they have one. The IRS publishes a sample in the Form 1023 instructions and asks on the form whether you have one.
Coverdell ESA: A tax-advantaged education savings account under §530. Distinct from a state-funded Education Savings Account (ESA) and from a §25F scholarship.
Covered State: The regulations' term for a state that has made a valid §25F election for a given calendar year. Donors anywhere in the U.S. may give to an SGO on any covered State's list; scholarships go only to students who reside in that state.
Determination letter: The IRS letter recognizing an organization as tax-exempt under 501(c)(3), issued after Form 1023 approval. Donors, grantmakers, banks, and state SGO lists all ask for it.
Director minimum: The smallest board a state allows a nonprofit corporation to have, set by the state's nonprofit corporation act. Commonly three; some states (like Arizona, California, Delaware, Kansas, Virginia) allow one. Three-plus unrelated directors is the practical floor for charity credibility regardless.
Disbursement: Paying out scholarship funds. Under Treasury's proposed regulations, tuition, fees, room and board, and similar school charges must be paid directly to the school; other vendors can be paid directly if verified and not related to the student; a qualified digital wallet is allowed; and money goes to a family only as a qualified reimbursement backed by a receipt.
Disqualified person: Someone an SGO may not award a scholarship to: a substantial contributor; an officer, director, or trustee (or anyone with similar powers); anyone who participates in selecting recipients or setting awards, including committee members; and family members of all of these. Under Treasury's proposed regulations, officers and selectors stay disqualified through the end of the year after they leave, and family includes spouses, ancestors, descendants, siblings and their descendants, and the spouses of those relatives.
Dissolution clause: The articles provision saying that if the organization shuts down, remaining assets go to another charity or government body, never to insiders. The IRS organizational test expects it; writing it expressly is the safe path in every state.
Donor substantiation: The written acknowledgment an SGO must provide each donor by January 31 of the following year to support a claimed §25F credit: the SGO's EIN, the year's designated total, the unique donor number, and any goods or services provided. The donor then reports the donor number on Form 8525.
ECCA (Educational Choice for Children Act): The bill name Congress used for the legislation that became §25F. Same program, different label.
EFTC (Education Freedom Tax Credit): The common name for the §25F credit, used by advocacy groups and adopted by the U.S. Treasury in its June 2026 guidance announcement.
EIN (Employer Identification Number): The federal tax ID number every organization needs for banking, hiring, and IRS filings. Issued free and instantly by the IRS online application; any site charging for one is a middleman.
Eligible student: A child who is eligible to enroll in a public elementary or secondary school and whose household income, for the calendar year before the scholarship application, is not more than 300% of area median gross income. The student does not have to be enrolled when applying. SGOs can verify income directly or through categorical eligibility, and foster children are treated as meeting the income test.
ESA (Education Savings Account): A government-funded, family-controlled account for a range of education expenses. A different school-choice model than an SGO tax-credit scholarship.
Fiscal year: The 12-month accounting period an organization chooses (calendar year for most). It drives the Form 990 deadline: the 15th day of the 5th month after the fiscal year ends.
Form 1023 / 1023-EZ: IRS applications for 501(c)(3) status. The streamlined 1023-EZ ($275) is for smaller orgs that qualify; the full Form 1023 ($600) is for larger or more complex organizations.
Form 8525: Form 8525, Federal Scholarship Tax Credit, is the form a donor files with the federal return to claim the §25F credit, listing each SGO's unique donor number, as named in Treasury's proposed regulations. The form and its instructions had not been released as of October 1, 2026.
Form 990: The annual information return exempt organizations file with the IRS: the 990-N postcard (receipts normally $50,000 or less), the 990-EZ (under $200,000 receipts and $500,000 assets), or the full 990. Public by law, and three straight missed years auto-revokes exemption. Under Treasury's proposed regulations, an SGO attaches its annual §25F certification and report to its Form 990.
FSTC (Federal Scholarship Tax Credit): The IRS's name for the same §25F credit, used on the IRS program landing page and in the title of Form 8525, Federal Scholarship Tax Credit.
Income verification: Confirming an applicant's household income is within 300% of area median gross income before awarding a scholarship. Treasury's proposed regulations allow four methods: direct review (pay stubs, prior-year returns, IRS transcripts, W-2s, or other relevant data sources), categorical eligibility, a safe harbor for need-based tutoring or special-needs services at schools in low-income areas, and automatic eligibility for foster children.
Incorporator: The person who signs and files the articles of incorporation. Their job ends once the board holds its first meeting and ratifies the formation.
IRS SGO list: The list the IRS publishes on irs.gov of SGOs on every covered State's list, organized by state, for organizations that authorize disclosure. Removed SGOs are shown as removed, with the date. Under Treasury's proposed regulations, a donor may rely on an organization's presence on this list at the time of the gift, unless the donor knew it didn't qualify or was responsible for or aware of the problem that led to its removal.
IRS SGO portal: The IRS online system every organization planning to solicit §25F contributions must register in, as soon as possible and preferably before appearing on any state list (temporary regulations). Registration gives the SGO the uniform donor-number format and lets it authorize listing on the IRS SGO list; the SGO reports donor totals through it by February 28. Not yet open as of October 1, 2026.
IRS State section 25F portal: The IRS online system a state uses to register (with a special-purpose EIN) and to file its election, SGO list, list changes, and certifications. The governor, or whoever state law designates, may authorize up to two designated officials to use it (temporary regulations). Not yet open as of October 1, 2026.
Located in a State: Under Treasury's temporary regulations, an organization is located in a state if it is authorized to do business there and complies with that state's generally applicable charity laws, including transparency, accountability, and fraud-prevention rules. No headquarters or in-state staff is required.
Minutes: The written record of a board meeting: who attended, what was decided, how votes went. Nothing to do with clock time, the name comes from 'minute' as in small ('my-NOOT'), i.e. brief notes. Kept permanently; auditors, banks, the IRS, and state vetting teams treat minutes as proof the board actually governs.
Motion: A proposal formally placed before a board for a vote, spoken as a sentence starting "I move that…". Nothing gets voted on at a board meeting until someone states it as a motion; the minutes then record it as a resolution if it passes.
Multistate SGO: An SGO that appears on more than one covered state's list. It must be located in each state, at least 85% of its activities must be scholarship granting, and it keeps a separate §25F account per state, lets donors choose how their gift is split among those states, and meets the operating tests separately for each account.
Nonrefundable credit: A credit that can reduce your federal tax to $0 but cannot create a refund beyond the tax you owed. The §25F credit is nonrefundable.
Notice 2025-70: The late-2025 IRS notice requesting public comment on §25F implementation. Treasury's October 2026 proposed regulations respond to those comments.
OBBBA (One Big Beautiful Bill Act): Public Law 119-21, the 2025 reconciliation law. Section 70411 of OBBBA added §25F to the tax code.
Opt-in / advance election (Form 15714): A state's election to participate in §25F, made by the governor (the mayor in DC) or whoever state law designates, one calendar year at a time; a completed election can't be revoked. Without it, families in the state can't receive §25F scholarships. For 2027, a state files an advance election on Form 15714 by January 1, 2027 and perfects it by submitting its SGO list by February 15, 2027. For later years, an advance election runs January 2 to September 30 of the prior year, with the list submitted between October 1 and January 1.
Organizational meeting: The first official board meeting after incorporation: adopt bylaws, elect officers, authorize the bank account and the 501(c)(3) application. Its minutes are the founding record everything else cites.
Participating state: A state that has opted in and submitted its list of qualified SGOs to the IRS. The regulations call it a covered State.
Proposed regulations: The Treasury/IRS rules interpreting §25F (REG-117199-25), released October 1, 2026 alongside temporary regulations. They are not final. Comments are due December 1, 2026, with a public hearing scheduled for December 15, 2026; taxpayers, SGOs, and states may rely on them for contributions made on or after January 1, 2027, until final rules are published, if they follow them consistently.
Qualified contribution: A cash donation by an individual to an SGO that the donor designates, to the SGO and at the time of the gift, as a §25F contribution; the designation is irrevocable, and a donor may designate only part of a gift. Under Treasury's regulations, cash means currency, check, money order, electronic transfer (including credit or debit card), after-tax payroll deduction, or similar, in U.S. dollars, and never a digital asset; stock is not cash. The value of any goods or services the donor receives is subtracted. Under the proposed regulations, a partner's or S corporation shareholder's share of the entity's gift does not count.
Qualified digital wallet: A third-party electronic payment platform an SGO may use to pay scholarship expenses: families submit purchase requests, the platform tracks approved expenses, and it pre-approves vendors and pays them directly or requires timely receipts. Treasury's proposed regulations list it as an approved payment method.
Qualified elementary/secondary education expense: An education cost a scholarship can pay for, defined by cross-reference to §530(b)(3)(A): tuition, fees, academic tutoring, special-needs services, books, supplies, and other equipment; room and board, uniforms, transportation, and supplementary items and services (including extended-day programs) required or provided by a school; and computer technology, equipment, and internet access. Treasury says separate §530 guidance on qualified expenses and on what counts as a school is a high priority; it was not out as of October 1, 2026.
Qualified reimbursement: The only way an SGO may pay money to a family under Treasury's proposed regulations: repaying a qualified expense the family has already paid, backed by a receipt showing both the payment and that the expense qualifies, after the SGO checks that no other source has covered the same expense.
Quorum: The minimum number of board members who must be present for a meeting's votes to count. Each state's nonprofit law sets a default (commonly a majority of directors) and how far bylaws may lower it.
Registered agent: The person or company with an in-state street address designated to receive legal papers for the corporation. Every state requires one; a board member at a real address works, or commercial services charge roughly $100 a year.
Renewal / sibling priority: The award priority §25F requires: first students who received a scholarship from the SGO the previous school year, then students with a sibling who received one from that SGO. Treasury's proposed regulations let the priority vary by award type: it matters most for tuition, fees, and room and board, while tutoring or special-needs awards can be prioritized by need.
Second: The one-word reply ("Second.") a DIFFERENT board member gives after a motion, meaning "I agree this deserves a vote." A motion with no second dies without a vote, it's the board's filter against one-person tangents. Not needed on a one-person board.
Self-dealing prohibition: Shorthand for the §25F rule barring an SGO from awarding scholarships to disqualified persons: substantial contributors, officers, directors, trustees, anyone who helps select recipients or set awards, and their family members. Treasury's proposed regulations make no exception for anonymized selection or unpaid volunteers.
SGO (Scholarship Granting Organization): A nonprofit that receives donations and awards K-12 scholarships. Under §25F, donors give to an SGO and claim the credit; the SGO awards scholarships to eligible families.
Single-State SGO: An SGO on the list of only one covered State. It may use the 85 percent safe harbor if it qualifies, or else meet the 90% test on all of its income.
Solely within the State: The §25F requirement that an SGO's scholarships go to students in its state. Under Treasury's proposed regulations it means the student resides in that state under state law; where the student attends school or buys things doesn't count, so a resident can use the scholarship at a school in another state. Dependents of Armed Forces members and of individuals residing on Indian Lands can qualify in two states.
State credit (ordering rule): Any state tax credit allowed for a contribution to an SGO. Under Treasury's proposed regulations, a state credit on designated dollars is subtracted from the contribution before the $1,700 cap applies ($2,500 gift, $500 state credit: full $1,700 federal credit), and when a state credit covers both designated and non-designated dollars, it is applied to the non-designated dollars first. A state deduction does not reduce the federal credit.
State SGO list: The list of SGOs located in a covered State that the state submits to the IRS each year. Under Treasury's temporary regulations, the state must certify it includes every organization located there that qualifies and asks to be listed, may add to it only until its deadline (February 15 for 2027), and may remove an SGO only through a due-process procedure or at the SGO's request. Any public state list must match the submitted one and link to the IRS SGO list.
Substantial contributor: Under Treasury's proposed regulations, anyone who gives an SGO more than $5,000 in its taxable year, if that is also more than 2% of the contributions it received that year, tested both for the whole organization and for its §25F account. A spouse's gifts count together. The status lasts for that year and the next, and it makes the donor and the donor's family disqualified persons. Treasury's example: $6,000 of $450,000 (1.33%) is not substantial.
Tax-credit scholarship: The model §25F uses: private donations to an SGO earn the donor a tax credit, and the SGO awards scholarships. Privately funded, not a government appropriation.
Tax liability: The total federal income tax you owe for the year, before withholding. The §25F credit can't exceed it, but withholding does not disqualify you, since liability is what matters. Under Treasury's proposed regulations, the credit applies against both regular tax and the alternative minimum tax, after certain other personal credits such as the child tax credit.
Temporary regulations (T.D. 10057): The §25F rules Treasury and the IRS issued October 1, 2026 that take effect without a comment period and apply from September 1, 2026: definitions (including located in a State and qualified contribution), SGO registration in the IRS SGO portal, donor acknowledgments and IRS reporting, state elections and SGO lists, and the bar on state rules stricter than §25F. They expire October 1, 2029, and their text matches the corresponding proposed regulations.
Timely written acknowledgment: The regulations' term for the statement an SGO must give each donor by January 31 of the year after the gift: its EIN, the donor's total designated contributions for the year, the donor's unique donor number, and whether any goods or services were provided (with a description and good-faith value). It can be delivered electronically if the donor consents. The donor number takes the place of a Social Security number, so the SGO doesn't need the donor's.
Unique donor number: A number (created in a uniform format the IRS provides through its SGO portal) that an SGO includes on each donor's written acknowledgment and reports to the IRS. The donor enters it on Form 8525, letting the IRS match credits to donors without donors sharing a Social Security number with the SGO. Under Treasury's proposed regulations, a donor who leaves it off is presumed not to have made a qualified contribution to that SGO, unless the donor produces the SGO's acknowledgment when the IRS asks.
Voucher: Government funds that pay private-school tuition for a family. A different model than the privately funded §25F tax-credit scholarship.

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The EFTC / §25F glossary

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