New FSTC Guidelines from Treasury

New guidance brings greater clarity for donors, schools, and families ahead of the program’s January 2027 launch.

The US Treasury Department and the IRS released a new regulatory package on October 1, 2026, adding details on how the Federal Scholarship Tax Credit program would work. Also called the Education Freedom Tax Credit, the program allows tax filers to receive a dollar-for-dollar reduction in federal tax in exchange for donations to Scholarship Granting Organizations (“SGOs”) like BLOCS.

Here are five takeaways for the BLOCS community:

1. Married couples now qualify for up to $3,400

The FSTC regulations previously said that beginning in 2027, eligible tax filers may receive a dollar-for-dollar federal income tax credit of up to $1,700 for qualifying contributions to SGOs.  There was a natural question whether that applied to each tax return, or to each individual filing a return.  Fortunately for married filers, this latest update clarifies that married couples filing jointly could claim up to $3,400, with each spouse making qualifying contributions, and individual tax filers can still claim up to $1,700.

It is important to remember that a credit reduces tax liability rather than taxable income. Donations under the FSTC program reduce the amount of federal tax you owe, so the amount usable in a year depends on the donor’s federal tax liability. 

2. Donors can give across state lines but student residency matters

Donors may support an eligible Scholarship Granting Organization like BLOCS regardless of where they live—even if their own state does not participate. Scholarship recipients, however, generally must reside in a participating state where the SGO is listed.

BLOCS is hopeful that PA will opt in, as we do with our neighboring states where many of our students live.

For 2027, states must submit their advance election by 11:59 pm on January 1, 2027 and their SGO list by February 15, 2027. State participation and an organization’s federal SGO qualification are separate steps. For families and schools, both are important to watch.

3. Schools Can Receive Scholarship Funds

The new guidelines clarify that schools can be recipients of funds; funds may not be paid directly to families except as a qualified reimbursement.  Because BLOCS enables donors to select the school or schools to receive their donations, this is a welcome clarification for BLOCS and our school partners.  BLOCS partners with nearly 600 schools and we expect that number to increase dramatically with the addition of the FSTC program in 2027. 

Qualified expenses can include tuition, academic tutoring, special-needs services, books, supplies, and qualifying technology, and schools can be public or private.

The update package also prevents participating states from imposing narrower SGO operating restrictions, such as excluding otherwise qualifying school types or education expenses.

If your school would like to learn more about partnering with BLOCS for the FSTC program, please contact us.

4. Many families could qualify with simpler verification options

The household-income ceiling is 300% of area median gross income, and the US Treasury estimates that as many as 92% of families in states that have opted in so far will be eligible.  It is not a single nationwide income cutoff. The proposal also clarified the income verification rules, which will make it easier for BLOCS and our school partners to ensure that eligible children and their families can receive FSTC-funded scholarships. For example, children are approved for scholarship assistance if someone in their household participates in Supplemental Nutrition Assistance Program (SNAP), Temporary Assistance for Needy Families (TANF), the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC), Section 8 housing, or Supplemental Security Income (SSI). 

Families should check the applicable local threshold rather than assume they earn too much.

5. Giving will come with specific documentation and safeguards

Donors and taxpayers demand SGOs be trustworthy, and BLOCS fully supports the new guidance that clarifies safeguards against fraud.  SGOs must provide a written acknowledgment containing a unique donor number by January 31 of the following year and report contribution information to the IRS. The donor-number system avoids requiring SGOs to collect donors’ Social Security numbers for this reporting. Additionally, SGOs with over $500,000 in contributions must have independent auditors.  BLOCS welcomes this provision, and we are always committed to safe, trustworthy, and transparent donation process.