The Education Freedom Tax Credit (officially known as the Federal Scholarship Tax Credit, IRC Section 25F) is a new federal program that allows a federal income tax credit for taxpayers who make qualified cash contributions to an eligible 501(c)(3) nonprofit Scholarship Granting Organization (SGO) that provides scholarships to eligible students attending public schools or accredited nonpublic schools for qualifying education-related expenses. The tax credit is subject to applicable federal limitations.
In order for contributions to qualify for the tax credit they must be made to an SGO that is included on the list of SGOs approved to operate in a state that has elected to participate in the program for the year in which the contribution is made.
Iowa has elected to participate in this program for 2027.
Scholarship Granting Organizations
SGOs are eligible 501(c)(3) nonprofit organizations that accept qualified contributions from taxpayers to fund scholarships to eligible students for qualifying education-related expenses. Interested nonprofit organizations must complete Iowa’s state application to participate as a SGO in Iowa.
Be recognized as a tax-exempt public charity under IRC Section 501(c)(3); private foundations are not eligible.
Meet specific federal requirements for awarding scholarships, managing contributions and verifying student eligibility.
Apply to be included on Iowa’s list of approved SGOs.
List items for SGO Application Supporting Documentation Checklist
Applicants will be required to provide the following documentation sufficient to demonstrate compliance with applicable federal requirements under Section 25F of the Internal Revenue Code.
Checklist
Supporting Documentation
Provided
Organization Eligibility - Federal Tax-Exempt Status (Section 3.A): IRS determination letter establishing the organization’s qualifying tax-exempt status or documentation of pending recognition, if permitted under federal requirements.
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Organization Eligibility - Organizational Authority (Section 3.B): Articles of incorporation, bylaws, or other governing documents establishing the organization’s legal status and authority to administer scholarships, including evidence of compliance with generally applicable Iowa requirements for charitable organizations, as applicable.
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Financial Management and Accountability (Sections 4.A-B): Policies and procedures addressing financial recordkeeping, segregation of federal contributions from other organizational funds, including Iowa STO contributions where applicable; the 90% scholarship expenditure requirement; and applicable financial controls.
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Scholarship Operational Requirements - Student Eligibility and Scholarship Administration (Sections 5.A-B): Policies and procedures demonstrating compliance with federal student eligibility, scholarship selection, prioritization, award, and expenditure requirements, including applicable verification and recordkeeping procedures.
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Conflicts of Interest and Prohibited Scholarships (Section 5.C): Policies and procedures addressing prohibited scholarship awards, disqualified persons, donor earmarking, and applicable conflicts of interest.
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Scholarship Program Materials and Allowable Expenditures (Section 5.D): Existing scholarship application materials or equivalent documentation demonstrating how the organization will administer awards and verify qualified educational expenditures.
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Donor Contributions and Reporting (Section 6.A): Policies and procedures demonstrating the organization’s ability to comply with federal contribution tracking, donor acknowledgment, recordkeeping, and IRS reporting requirements.
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Financial and Programmatic Audits (Section 7.A): Financial and programmatic audit reports required under applicable federal law and regulations, if available, or documentation demonstrating prospective compliance where permitted under federal transition provisions.
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A single document may satisfy multiple categories.
Newly established organizations may submit prospective policies and procedures where permitted under applicable federal requirements.
The State of Iowa may request clarification or additional documentation reasonably necessary to verify federal eligibility or prevent fraud and abuse. Such requests will not impose additional substantive eligibility requirements beyond those authorized by applicable law.
Applications to qualify as an SGO in Iowa for 2027 are due by December 11, 2026
To be considered for inclusion on Iowa’s 2027 SGO list, interested organizations must complete the application by 11:59 p.m. on Friday, December 11, 2026.
Once qualified, SGOs must meet ongoing federal financial, recordkeeping, donor acknowledgement, and IRS reporting requirements. After the state has submitted its official list of eligible SGOs to the Internal Revenue Service (IRS), Iowa's finalized list of approved SGOs will be available on the Department’s website.
Qualifying for Iowa’s list in 2027 does not guarantee an SGO will qualify to participate in Iowa for any future year.
Federal Resources
The U.S. Department of the Treasury and IRS have issued temporary and proposed regulations governing the program. Additional federal guidance may be provided as implementation progresses.
