Federal Scholarship Tax Credit (FSTC): what homeschool families need to know for 2027

A new federal tax credit takes effect January 1, 2027, and while it doesn't go directly into your pocket, it's designed to put more scholarship money into the hands of families like yours. Here's what the Federal Scholarship Tax Credit (FSTC) actually is, how it works, and what homeschooling and alternative-education families in participating states should do to prepare.

What the FSTC is — and what it isn't

The Federal Scholarship Tax Credit (IRC Section 25F) is a federal tax credit for individual taxpayers who donate to Scholarship Granting Organizations (SGOs). Starting January 1, 2027, a donor can contribute up to $1,700 in cash to a qualifying SGO in a participating state and claim that contribution as a federal tax credit.

The credit goes to the donor — not the family receiving the scholarship. That's an important distinction. The FSTC isn't a program you apply to directly. It's a mechanism that incentivizes private donations to SGOs, which then distribute those funds as scholarships to families.

The practical effect for families: when more donors claim the FSTC, more scholarship funding flows into SGOs, and more scholarships become available to qualifying families for approved educational expenses — which in most participating states includes private school tuition, homeschool materials, tutoring, and online classes.

How the money reaches families

The flow works like this:

1. An individual taxpayer donates up to $1,700 to a qualifying SGO in a participating state
2. The donor claims the FSTC on their federal return for that tax year
3. The SGO pools those donations with others and awards scholarships to eligible families
4. Families use scholarship funds for approved educational expenses

Each SGO sets its own eligibility criteria and award amounts within the state's program rules. Some SGOs serve low-income families exclusively; others have broader eligibility. The specific expenses that qualify depend on your state's SGO program — but most participating states include homeschool expenses, tutoring, and online learning programs in their approved lists.

If your family already uses a state ESA program, an SGO scholarship could layer on top of it as an additional funding source, depending on your state's rules around combining benefits.

Which states are participating in 2027

A state must make an advance election to participate and provide the IRS with a list of qualifying SGOs before donors in that state can claim the credit. As of May 15, 2026, the following 27 states have made advance elections for 2027:

Alabama, Alaska, Arkansas, Colorado, Florida, Georgia, Idaho, Indiana, Iowa, Louisiana, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, West Virginia, and Wyoming.

The IRS updates this list as additional states complete their elections. If your state isn't listed yet, check back — the final participating states list will be confirmed closer to January 2027. Source: IRS FSTC page, last updated May 29, 2026.

How this connects to Outschool

In most state SGO programs, approved expenses include online learning programs and tutoring — which means Outschool classes could qualify as an eligible expense if you receive an SGO scholarship in a participating state. The specifics depend on which SGO awards your scholarship and what expenses that SGO's program covers.

Outschool is already an approved provider in most state ESA programs and is reimbursable under many state scholarship programs. If you receive an SGO scholarship in 2027, check with your SGO directly about whether online class expenses are covered before booking.

How the FSTC differs from a state ESA

A state ESA redirects public education dollars directly to your family account — funded by the state, not by donors. The FSTC is a private-donation mechanism that routes charitable contributions through SGOs to families as scholarships.

• State ESAs are funded by state education budgets. They tend to have higher award amounts (Texas TEFA: $10,500 for private/hybrid students; West Virginia: ~$4,600) and direct-purchase or digital wallet access.
• SGO scholarships (funded via the FSTC) are funded by private donors. Award amounts vary by SGO and depend on donation volume. They're often targeted to specific income levels or circumstances.

Many families use both. For a detailed breakdown of education funding options, see our guide to ESA vs. 529 plans.

What to do now

The FSTC doesn't launch until January 2027, so there's no application to submit yet. But there are a few things worth doing before then.

If you're in a participating state: Look up which SGOs operate in your state. Your state's Department of Education website or homeschooling association will typically maintain an updated list once the program is active. Review each SGO's eligibility criteria and application timeline — most will open scholarship applications in late 2026 or early 2027. Check whether your state allows you to stack an SGO scholarship with an existing ESA.

If you're not in a participating state: Watch your state legislature. Several states are expected to make advance elections before the January 2027 launch date. The IRS updates the participating states list as elections are confirmed.

If you already have a state ESA: The FSTC doesn't replace or affect your current ESA funding. Continue using your ESA as you normally would. The FSTC is an additional layer, not a substitute.

Frequently asked questions about the FSTC

Can I claim the FSTC on my federal taxes if I donate to an SGO?

If you're in a participating state and donate up to $1,700 to a qualifying SGO in that state, yes — you can claim the credit on your federal return beginning with the 2027 tax year. Consult a tax professional to confirm your specific situation and ensure the SGO you're donating to is on your state's qualifying list.

Do I have to be a homeschooler to benefit from the FSTC?

The FSTC is available to any family who receives a scholarship from a qualifying SGO — homeschoolers, private school families, and in some states, hybrid or microschool families. Eligibility depends on the specific SGO program in your state.

Is the FSTC the same as a state ESA?

No. A state ESA is funded by public education dollars and managed through your state's program. The FSTC is a federal tax credit for private donors who contribute to SGOs. They're separate programs that can sometimes be used together.

What if my state isn't participating yet?

Check the IRS FSTC page periodically — states can add their advance election before the program launch. If your state doesn't participate by January 2027, families in that state won't be able to access FSTC-funded SGO scholarships for that year.

Have ESA funds to spend now? Browse ESA-eligible classes on Outschool — live classes with real teachers across every subject, flexible scheduling, and no long-term commitment required.