How to recruit donors for your SGO under the Education Freedom Tax Credit

This is the companion piece to our 90/10 rule guide and our how-to-start guide. Those cover what an SGO must do to qualify and stay compliant. This one covers a narrower, practical question: once you’re a qualifying Scholarship Granting Organization, how do you actually get people to give?

The pitch just changed

Every SGO that has raised money under a state tax-credit scholarship program already knows the old pitch: give to help a child, and get a state tax credit as a bonus. That pitch works, but it’s built around donors who already itemize and already give to charity. The federal §25F credit opens a different, much larger donor pool because of one mechanical fact: it’s a credit, not a deduction. A donor doesn’t need to itemize to use it. They just need enough federal income tax liability to absorb it. Under Treasury’s proposed regulations that is measured after other personal credits, including the child tax credit, so a family whose tax is already wiped out by those credits gets nothing this year (unused credit carries forward up to five years).

That reframes the ask. Instead of “please make a donation,” the honest, accurate pitch is closer to: “you’re going to pay this money to the federal government either way; redirect up to $1,700 of it to a scholarship fund instead, and get every dollar back dollar-for-dollar.” For a married couple, the ask doubles: under Treasury’s proposed regulations, spouses filing jointly are separate taxpayers, so up to $3,400 if each spouse makes and designates their own gift. For a donor who has never itemized in their life, this is a new kind of ask rather than a better version of a familiar one.

Who your donors actually are

Under the old itemized-deduction model, the addressable donor pool for a scholarship charity skewed toward higher-income households who itemize. §25F’s standard-deduction reach changes who’s worth talking to:

• Working households who take the standard deduction. This is the majority of filers, and under the old pitch they were told, correctly, that a charitable gift wouldn’t change their tax bill. Under §25F it will, up to $1,700, regardless of itemizing.
• Parents at partner schools, whether or not their own child receives a scholarship. A parent with tax liability but no spare cash for tuition can still redirect $1,700 they already owe toward another family’s scholarship, and many will feel the fairness of that immediately. Two rules to explain up front: a parent’s gift can never be earmarked for their own child, and a donor who gives more than $5,000 in your taxable year (spouses counted together), if that is also more than 2% of the contributions your SGO or its §25F account received that year, becomes a disqualified person, which bars scholarships to the donor’s children and other relatives for that year and the next. A typical $1,700 gift, or $3,400 from a couple, is well under the dollar line.
• Alumni and extended community members who feel connected to a school or mission but have never been asked to write a check, because the old pitch didn’t reach them financially.
• Employees of local businesses, reachable through an employer willing to circulate the message, especially once they understand the paycheck-withholding angle below. Treasury’s rules count an after-tax payroll deduction as cash, so an employer can offer giving straight from the paycheck. The credit belongs to the employee who gives; a gift from the business itself doesn’t earn it.
• Donors outside your state. Under the proposed regulations, a donor anywhere in the U.S. can give to an SGO on any participating state’s list, including donors who live in a state that hasn’t opted in. Grandparents, alumni, and family who have moved away are all reachable. See our news read of the any-state rule.

None of this replaces the traditional major-donor relationship. It adds a much wider base of smaller, recurring, credit-driven gifts underneath it.

The message that lands

A few specific, factual points do most of the work in a §25F pitch. Lead with whichever one is most concrete for the audience in front of you.

1. Dollar-for-dollar, up to $1,700

Say the number. A $1,700 cash gift to a qualifying SGO reduces the donor’s federal tax bill by $1,700, not by a fraction of it, as long as they owe at least that much. The limit is $1,700 per person; for a married couple, ask each spouse for their own gift (up to $3,400 back on a joint return). For a plain-language version of this explanation you can forward to a parent list or congregation, see our shareable one-pager.

2. You don’t have to itemize

This is the line that surprises people who’ve tuned out every past charitable-giving pitch. It’s worth saying explicitly, because most donors’ mental model of “does a donation help my taxes” was formed under the deduction system and is now out of date for this credit.

3. You can see it in your paycheck, not next year’s refund

A donor who gives in 2027 doesn’t have to wait until they file in 2028 to feel the benefit. Because the credit is earned in the 2027 tax year, a donor who adjusts their federal withholding can recover it across their 2027 paychecks instead of lending the money to the IRS interest-free for over a year. Treasury’s §25F rules say nothing about withholding, so ordinary W-4 rules govern it. Point donors who ask “when do I actually get this back” to our withholding guide, and loop in their tax preparer for the specific W-4 adjustment.

4. In a state with its own credit, the ask can be bigger

Many SGOs already raise money under a state tax-credit scholarship program, and Treasury’s proposed regulations settle how the two credits interact: a state credit is subtracted from the gift first, and the $1,700 cap applies to what is left. In Treasury’s own example, a donor who gives $2,500 and claims a $500 state credit has $2,000 left, so the full $1,700 federal credit applies: $2,200 back in total. And when a donor designates only part of a larger gift for §25F, a state credit on the whole gift is applied to the undesignated part first (Treasury’s example: $4,000 given, $1,700 designated, $400 state credit, full $1,700 federal credit). A state deduction doesn’t reduce the federal credit at all. The combined benefit can never exceed the gift. Our news read of the stacking rule has the math, and how the state and federal credits stack covers the state programs.

5. The honest fine print

Credibility matters more than optimism here, and every one of these points is a real constraint, not a technicality to bury:

• The credit is non-refundable: it can reduce tax owed to zero but not generate a refund beyond that, with a 5-year carryforward for any unused amount.
• Gifts must be cash: currency, check, money order, electronic transfer (including a credit or debit card), or after-tax payroll deduction, in U.S. dollars. Crypto and other digital assets are excluded by name, and stock, property, and in-kind gifts don’t qualify. The gift has to come from the individual: a partner’s or S corporation shareholder’s share of a business’s gift doesn’t count.
• The donor must designate the gift as a §25F contribution to the SGO when it is made, and the designation can’t be undone. For an SGO listed in more than one state, the donor also picks the state.
• A donor cannot double up: the same contribution can’t be claimed as a §25F credit and a §170 charitable deduction, though the part of a gift above the credited amount may still be deductible for an itemizer. The federal credit is also reduced by any state credit claimed for the same gift (under Treasury’s proposed rules the reduction comes off the gift before the $1,700 cap applies, as above).
• The credit is effective for gifts made on or after January 1, 2027. A gift made before then doesn’t earn it.
• Married couples filing jointly can claim up to $3,400 under Treasury’s proposed regulations, when each spouse gives and designates their own gift. Say “proposed”: the rules aren’t final, though Treasury says taxpayers may rely on them for 2027. Ask couples for a gift from each spouse: a single $3,400 gift from one spouse supports only one $1,700 credit.

Send anyone who wants to see their own number to our tax credit calculator. Letting a donor plug in their own numbers converts better than telling them a number, and it keeps you from having to promise one.

The 10% cap on finding them

Here’s the constraint that makes SGO fundraising different from ordinary nonprofit development work. Under the 90/10 rule (§25F(d)(1)(B)), a qualifying SGO must spend at least 90% of its income on scholarships. Treasury’s proposed regulations define that income as the organization’s total gross receipts from all sources, and give each year’s income until the end of the following taxable year to be spent. For an SGO tested that way, the remaining 10% is the ceiling on everything else combined: staff, technology, audits, legal, income verification, reporting, and fundraising. Raising a separate operating gift doesn’t get around the test, because that gift is income too.

The proposed rules add an exception that matters for fundraising. A single-state SGO whose activities are at least 85% scholarship granting (counting the administration, fundraising, and compliance work that supports it) may apply the 90% test to its §25F segregated account alone, measured against designated gifts and their earnings. A multistate SGO must meet that 85% bar and tests each state’s account. Treasury says the point is to let SGOs raise money for administrative costs that don’t count toward the 90% requirement. In practice, an SGO under the safe harbor can ask a donor for a §25F gift for scholarships and, separately, for an ordinary operating gift that earns no §25F credit (it may still be deductible under the usual charitable rules). See our news read of the 85% safe harbor; Treasury has asked for comments on how activities should be measured, so the details could change in the final rules.

Either way, the acquisition playbook a typical charity can afford (heavy paid advertising, direct-mail campaigns, and large development staff) is mostly out of reach. Fundraising still happens; acquisition just has to be cheap per donor, not only effective per donor. In practice that pushes SGOs toward three kinds of spend:

1. Relationship channels that cost time, not money (school partnerships, community organizations, word of mouth).
2. Software that automates the paperwork so a small team can process a large donor base without proportional headcount. Receipting, donor-number issuance, and record-keeping are exactly the repetitive tasks that blow past the cap when done by hand.
3. Content that answers questions once, at low marginal cost, instead of a staff member answering the same "how does this work" question by phone every time.

Where to find donors first

A realistic first-year donor base for most SGOs comes from a small number of channels, roughly in this order of return on a limited budget:

• Partner schools. The parents, staff, and board of any school you already serve are the warmest possible audience. They have a direct reason to care and a short path to understanding the pitch.
• Current scholarship families. Families who’ve received a scholarship are credible messengers to their own network, and many will want to give once their own situation improves, even a modest gift from someone who’s used the program lands differently than a cold ask.
• Congregations and community organizations. Groups that already circulate school-related information to members are a natural distribution channel for a one-page explainer.
• Local employers. A business owner or HR department willing to mention the credit to staff, especially alongside the paycheck-withholding angle, can reach dozens of potential donors through one conversation. Offering after-tax payroll deduction, which counts as cash under Treasury’s rules, makes the gift automatic.
• Existing donors from any state program you already run. If your SGO already operates a state tax-credit scholarship program, your current donor list is the single fastest audience to tell about the new federal layer. Under Treasury’s proposed ordering rule, a donor who gives enough can keep the state credit and still get the full $1,700 federal credit; see how the state and federal credits stack for the specifics.

A first-year acquisition plan

A workable sequence for an SGO building its donor base before and through the January 2027 launch:

1. Before 2027: build the list, don’t ask for the gift yet. Collect emails from parents, school contacts, and community members. Explain that the credit takes effect January 1, 2027, and that gifts made earlier don’t qualify for it.
2. Get listed, and point donors to the IRS list. Under Treasury’s temporary regulations, every organization that plans to solicit §25F gifts must register in the IRS SGO portal (not open as of October 1, 2026) as soon as possible, which is also how it gets its donor-number format. A participating state must put every organization located there that qualifies and asks to be included on the list it submits; for 2027 those lists are due to the IRS by February 15, 2027. Under the proposed rules, a donor may rely on your appearing on the IRS SGO list at the time of the gift, so that listing is the confirmation to show, not just claim. See the 2027 calendar.
3. Build the donation form to the rules. It needs a clear §25F designation checkbox (the designation must be made at the time of the gift and is irrevocable), a state selector if you are listed in more than one state, payment methods that count as cash (card, bank transfer, check, payroll deduction; no crypto or stock), and a way for each spouse to give separately. Ask for the gift from the individual, not from a family LLC or S corporation.
4. Equip your warmest channels first. Give partner schools and current donors a one-page explainer and a direct link to give, rather than starting with cold outreach.
5. Make the paycheck-withholding case to working families. This is the argument that differentiates §25F from every past giving pitch these donors have heard; don’t bury it.
6. Issue donor numbers and receipts immediately and correctly. The written acknowledgment is due by January 31 of the year after the gift, with your EIN, the donor’s total designated gifts, their unique donor number, and any goods or services provided; you report the same donor numbers to the IRS by February 28. A donor’s first experience with your SGO needs to be that the paperwork just works; see how the donor number works before your first gift comes in.
7. Brief your biggest donors on the $5,000 and 2% line. A donor (spouses counted together) who gives more than $5,000 in your taxable year, if that is also more than 2% of the contributions your SGO (or its §25F account) received that year, is a substantial contributor for that year and the next, and their family members cannot receive your scholarships. Tell major donors before they give, and track the line before awards go out (our news read of the rule has Treasury’s examples).
8. Track acquisition cost against the 10% cap (or your separately funded operating budget), not against gift volume alone. A channel that brings in donors but costs too much staff time to process each gift can quietly eat the budget even while the top-line numbers look good.

Frequently asked questions