Hidden inside the One Big Beautiful Bill Act (OBBBA for short) that passed a year ago, is a quirky little thing called the Federal Scholarship Tax Credit (FSTC). Nobody has talked much about it since it doesn’t kick in until the 2027 tax year. (That’s tax returns filed in 2028.)
It is a non-refundable federal tax credit of up to $1,700 for individuals who donate cash (not property) to qualifying organizations that are created to provide scholarships to K-12 students. It can even be applied against Alternative Minimum Tax as well as regular income tax. Note, it is a tax credit, not a deduction. That is HUGE! Dollar for dollar. You give $1,700 to a qualified charity; the IRS gives you back your $1,700.
The $1,700 credit applied to taxpayers filing a single return or joint return…same maximum credit amount on either type of return. Sheesh! Talk about the marriage penalty! There is no income limitation. (High income taxpayers can this tax the credit.) Any unused credit can be carried forward to future years.
Scholarship recipients will NOT be taxed on the funds they receive.
The contributions are only allowed to be taken when given to a “Scholarship-granting organization (SGO)” which must be a 501(c)3 charity organization. Only allowed in states who have opted in. As of mid-May of 2026, Nevada is a qualified state. So far, California is not. States have until the end of 2026 to opt-in.
Scholarships can only be provided to students who live in a household whose income is 300% or less than the area’s median gross income. For northern Nevada that is $240,000. Once again, no difference between single or married households…same number. (One wonders what Congress was smoking to think single and married households earn the same.) Scholarships can cover certain K-12 school expenses. (Tuition, fees, academic tutoring, services for students with special needs, books and supplies, uniforms room and board, and computers.)
The credit is reduced by any credit taken on a state tax return (no problem in Nevada) and you can’t also claim the contribution as a normal charity donation.
So, churches with K-12 schools, go out there and create a 501(c)3 SGO, ask all the households of your congregation to donate $1,700 a year to this, then distribute scholarships. All the members who pay at least $1,700 a year in tax will get their money back when they file their tax returns. (By the way, there is no dollar limitation on the size of individual scholarships given out. The ruling board of the SGO can set any rules it wants.) Those scholarships can help fund the school as well as expand the student population. A ministry to attract non-church families’ children into your church school?
Have you heard? Ecclesiastes 3:12 says, “I know that there is nothing better for them than to rejoice, and to do good as long as they live.”
— Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 775-882-4459. As well as on our website at BullisAndCo.com. You can also find us on LinkedIn and Facebook.
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