EFTC scholarship eligibility: who qualifies and what's covered

Which students qualify

Eligibility under §25F hinges on three things:

1. Age / grade: The student is eligible to enroll in a public elementary or secondary school. Practically this means K-12. Treasury’s proposed regulations do not address pre-K, and the “school” a qualified expense must connect to is one providing kindergarten through grade 12 education (IRC §530(b)(3)(B)). The student does not need to be currently enrolled in public school, the test is eligibility to enroll. Treasury’s proposed regulations add that a student need not be enrolled anywhere at the time of the application: a student eligible to enroll in public school may receive a scholarship in the summer before the school year, for expenses connected with enrolling in a school later that year. A student stays eligible through normal grade transitions (for example, moving from 8th to 9th grade), but once a student graduates from 12th grade and is no longer eligible to enroll in K-12, no further scholarships can be awarded.
2. Household income: at or below 300% of Area Median Gross Income for the calendar year before the application (see below).
3. State of residence: The student lives in a state that has elected to participate for that year, and the SGO they apply through is on that state’s SGO list (see the next section).

Where you live, not where the school is

Under Treasury’s proposed regulations (October 2026), which SGOs and taxpayers may rely on for 2027 contributions, an SGO may fund only students who reside, under state law, in a state whose SGO list it is on. Attending school in a state, or buying services there, does not count. Treasury’s own example: an SGO listed only in State X can fund a student who lives in State X and attends school in State Y, but not a student who lives in State Y. A school across the state line is fine; a home across the state line is not.

Two groups get an exception. A dependent of a member of the Armed Forces counts as within both the state of the student’s domicile and the state where the service member is living. A dependent of an individual residing on Indian Lands counts as within both the state of residence and the state where the student attends school. More on the residence rule in our news coverage of the rules.

Income limits: 300% of AMGI

The federal income cap is 300% of Area Median Gross Income (AMGI), as that term is used in IRC §42 (the Low-Income Housing Tax Credit). Treasury’s proposed regulations compute area median gross income the way HUD does for Section 8 housing, adjusted for family size, and say the IRS will publish the figures by area and family size each year in the Internal Revenue Bulletin. The first tables have not been published yet. Income is measured at the household level (not AGI of a single filer).

Who is in the household: the student plus everyone living with the student. In shared custody, the household is the one where the student lives the longest during the year; if the time is equal, it is the household with the higher income.

What counts as income: annual income as HUD defines it for Section 8 (24 CFR 5.609), with one change Treasury made for tax administration: items not received in cash are ignored, such as the imputed return on net assets (for example, unrealized appreciation in a home or stock). Child support and alimony count even when they are not taxable income.

Which year’s income counts: §25F measures household income for the calendar year before the application, not the year of the award. A family applying for a 2027 scholarship is assessed on its 2026 household income; a 2028 application looks at 2027 income, and so on. That comes straight from the statutory text (§25F(c)(2)(A)), which sets the cap at 300% of AMGI “for the calendar year prior to the date of the application for a scholarship.”

Because AMI varies dramatically across the country, the dollar threshold a family of four faces in a high-cost metro can be much higher than in a low-cost rural area. The intent is to keep EFTC accessible to working- and middle-class families across very different cost-of-living regions.

Four ways to show your income qualifies

Treasury’s proposed regulations, released October 1, 2026, require each SGO to check income using one or more of four methods. In family terms:

1. Show your income documents. Pay stubs, prior-year federal or state tax returns, IRS transcripts, or W-2s, plus proof of income those don’t show (such as untaxed child support or alimony) or a statement that there is none. SGOs may also verify through other relevant data sources.
2. Show a benefits award letter. A letter dated within the last 12 months showing that someone in the student’s household currently receives SNAP, TANF, WIC, Section 8 housing assistance, or SSI. Only those five programs are listed. A school’s school-wide free or reduced-price lunch status does not count, because the test is household by household. Treasury has asked for comments on adding other needs-based programs, such as state or tribal ones.
3. Foster children qualify automatically. A child removed from a parent’s or guardian’s custody and placed under the care or placement authority of a child welfare agency meets the income test without any income check.
4. Selected by a school in a low-income area. When an SGO funds individual tutoring or special-needs services at a school located in a HUD qualified census tract (or a school that certifies at least 80% of its students live in one), and the school picks the students based on each student’s need, those students are treated as meeting the income test. The SGO must get an annual third-party audit of that program, including confirmation that each student’s need was diagnosed by a professional independent of the provider.

SGOs will publish their specific application requirements before the program goes live in January 2027.

Priority order for awards

When an SGO has more eligible applicants than scholarship dollars, the statute (§25F(d)) requires it to give priority to:

1. Students who received a scholarship from the same SGO the prior school year.
2. Siblings of prior-year recipients.

Treasury’s proposed regulations read that priority in light of what the award pays for. Renewal and sibling priority matter most for tuition, fees, and room and board, so a student can stay at the same school and siblings can attend together. For an award based on need for individual tutoring or special-needs services, prior awards and siblings “may not be relevant and priority instead can be based on need for the services.”

Beyond those two priority tiers, SGOs have discretion. There is no statutory priority for low-income families over higher-income (but still eligible) families, though many SGOs add their own criteria favoring lower-income, special-needs, or specific underserved populations. The proposed regulations confirm an SGO can be stricter than the federal floor: Treasury’s examples include limiting scholarships to households below 80% (or at or below 50%) of area median gross income, or to specific subject areas such as science or foreign languages.

Eligible does not mean funded. Treasury’s fact sheet says eligibility does not guarantee a scholarship. Awards depend on how much each SGO raises and how it sets its priorities.

Which schools and programs are covered

EFTC was written to be flexible about how scholarship dollars are used. Treasury’s proposed regulations define “school” by IRC §530(b)(3)(B): a school providing K-12 education “as determined under State law.” Settings that can be involved:

• Independent and religious private schools (tuition and fees)
• Public schools, including charter schools (for expenses such as tutoring, special-needs services, books, supplies, and computers; Treasury’s fact sheet names tutoring for students attending a local public school)
• Special-education and therapy providers, tutoring providers, and supplemental academic programs, paid as vendors for an eligible student, to the extent the service is a §530(b)(3)(A) expense (such as academic tutoring, or special needs services for a special needs student); the exact scope awaits Treasury’s §530 guidance
• Microschools, learning pods, and homeschools: only if the setting counts as a K-12 school under state law, a question Treasury has left to separate §530 guidance that is still pending

States cannot narrow this. Under Treasury’s temporary regulations, a participating state may not limit “the type of school that scholarship recipients may attend.” SGOs, on the other hand, may choose their own focus. Some focus on a particular sector (e.g., Catholic schools, special-needs services); others fund a broad mix. Homeschool, microschool, and learning-pod families should read EFTC for homeschool & microschool families.

Which educational expenses are covered

EFTC defines “qualified education expenses” by reference to IRC §530(b)(3)(A) , the same expense list used for Coverdell Education Savings Accounts. Treasury’s proposed regulations keep that cross-reference, adding “and any guidance thereunder.” That list is broader than many people assume:

• Tuition and fees at public, private, or religious K-12 schools
• Books, supplies, and equipment required for instruction
• Academic tutoring
• Special needs services for special-needs beneficiaries (commonly read to include occupational, physical, behavioral, and speech-language therapies, assistive technology, and specialized instruction; the exact scope awaits Treasury’s §530 guidance)
• Room and board, uniforms, and transportation when required or provided by the school in connection with enrollment
• Supplementary items and services, including extended-day programs, on the same “required or provided by” the school basis
• Computer technology, equipment, internet access, and related services, for the student and the student’s family during the school years (excluding general-use sport, game, or hobby software unless predominantly educational)
• Standardized test fees (SAT, ACT, AP, state assessments) are not named in the statute; whether they fall under “fees” is for the pending §530 guidance and your SGO

Treasury has not yet issued that separate §530 guidance; its proposed-regulations preamble says it intends to do so “as soon as possible.” In the meantime, Treasury’s own October 2026 announcement lists private-school tuition, academic tutoring, special-needs services, books, supplies, computers and other equipment as examples, and its fact sheet adds qualifying extended day programs. See what the EFTC pays for for the full list.

Each SGO publishes its own application of these federal guidelines. Some SGOs may add restrictions (for example, focusing only on tuition); others apply the full §530(b)(3) list. A state cannot restrict the expense types; an SGO can choose to fund fewer of them.

How the money moves: under the proposed regulations, tuition, fees, room and board, and similar school charges go directly to the school. Other providers can be paid directly if the SGO has verified them and they are not related to the student. Money goes to a family only as a reimbursement backed by a receipt, after the SGO checks that the same expense is not being reimbursed twice. SGOs may also use a qualified digital wallet, a third-party platform where families submit purchase requests and the platform pays pre-approved vendors or collects receipts.

Scholarships are not taxable income

Under IRC §139K (added alongside §25F), EFTC scholarship amounts are excluded from gross income. Neither the student nor the parent or guardian owes federal income tax on scholarship dollars received. This applies to amounts received after December 31, 2026.

How families apply

1. Confirm your state has opted in. Visit the state-by-state status map. If it hasn’t, scholarships aren’t available to your family yet.
2. Find a Scholarship Granting Organization (SGO) on the list for the state where your child lives. Each participating state submits its SGO list every year (the first lists are due February 15, 2027), and the IRS publishes the combined IRS SGO list on irs.gov, organized by state. Many SGOs serve a particular geography, school type, or student population.
3. Complete the SGO’s application. You’ll submit basic family information, proof of income (prior-year tax returns, pay stubs, or W-2s, or a benefits award letter from the last 12 months; see the four methods above), and any additional materials the SGO requires. How SGOs verify household income explains what the organization checks and why.
4. Wait for an award decision. Award timing depends on the SGO’s funding cycle. Some SGOs award on a rolling basis; others have fixed application windows. Returning recipients get priority first, then their siblings (see the priority rules above).
5. Use the scholarship. Under the proposed regulations, tuition and other school charges are paid directly to the school, and other providers are paid directly or through a qualified digital wallet. A family receives money only as a receipt-backed reimbursement. See the four ways SGOs can pay.

Special circumstances

Students with disabilities

Many SGOs prioritize or have dedicated funding streams for students with disabilities, recognizing that families often face additional education costs (specialized schools, therapies, assistive technology) that public schools may not fully address. Treasury’s proposed regulations let an SGO set priority for special-needs awards by need rather than by renewal or sibling status, and students a school in a low-income area selects for special-needs services can skip the income check (see the four methods above). See our guide to EFTC for special-needs families.

Military families

Frequent moves and unique educational needs of military-connected students are an explicit consideration in some SGOs’ award criteria. Under Treasury’s proposed regulations, a dependent of a member of the Armed Forces counts as living in both the state of the student’s domicile and the state where the service member is living, so SGOs listed in either state can fund the student, provided that state participates that year.

Foster and kinship families

Foster children meet the income test automatically under Treasury’s proposed regulations, with no household income check. A foster child here means a child removed from a parent’s or legal guardian’s custody and placed under the care or placement authority of a child welfare agency, whoever the child is placed with. The definition carves out an order appointing a legal guardian, so a kinship family with a guardianship order should ask the SGO whether the foster-child route applies, or plan to show income the usual way. Caseworkers can help with placement documentation.

Families with ties to an SGO

An SGO cannot award a scholarship to a “disqualified person.” Under Treasury’s proposed regulations that includes the SGO’s officers, directors, and trustees, anyone who takes part in choosing recipients or setting award amounts (committee members and volunteers included), and substantial contributors, plus family members of all of them. A substantial contributor gave more than $5,000 in the SGO’s year, if that is also more than 2% of what the SGO received; Treasury’s example is a $6,000 gift to an SGO that took in $280,000 that year (2.14%). The bar lasts that year and the next. Family reaches a child whose parent, step-parent, grandparent, sibling, aunt, or uncle is in one of those roles. The child can still apply to a different SGO. A donor also cannot earmark a gift for a particular student. Details in our coverage of the disqualified-person rules.

How participation varies by state

While EFTC is a federal program with federal eligibility floors, states have discretion in two areas, and Treasury’s temporary regulations (October 2026) set limits on the second:

• Whether to opt in at all. States elect one calendar year at a time. For 2027, a state needs an advance election by January 1, 2027, and its SGO list by February 15, 2027. Without a completed election, no scholarships are available in the state that year.
• How to oversee participating SGOs. A state must require SGOs to follow its general charity laws, and to file applications, documentation, and financial reports reasonably tailored to the federal rules and to preventing fraud, such as duplicate awards. It may not impose rules more restrictive than §25F, such as limits on the type of school students attend or the types of expenses scholarships cover, and its list must include every organization located in the state that seeks inclusion and meets the federal requirements.

The result for families: the federal eligibility rules on this page are the same in every participating state. See one national standard for SGOs and the 2027 state calendar.

For the latest on your state’s status, see the state participation page.

Frequently asked questions