What Your $1,700 Actually Gives: A Walk Through the 90% Rule

There is a question every thoughtful donor asks and most charities dread.

“When I give you a dollar, how much of it reaches the person on the brochure?”

The honest industry-wide answer is “it varies,” which is why watchdog sites exist and why so much charitable giving comes wrapped in a thin layer of doubt.

The Education Freedom Tax Credit (EFTC) takes a different approach.

Congress wrote the overhead limit into federal law stating that a Scholarship Granting Organization (SGO) must spend at least 90% of its income on scholarships for K–12 students.

Follow the Dollar

Walk your gift through the machine.

In January 2027, you donate $1,700 to a certified SGO in your state. Under the rules Treasury previewed in June, that money can go into a dedicated EFTC account — a pool the organization keeps separate from everything else it does, so the 90% test is measured cleanly against it.

Of every dollar in that account, at least 90 cents must become scholarships: tuition, tutoring, books, fees, special-needs services for children whose families earn up to 300% of their area’s median income.

At most a dime can go to everything else, including staff, systems, verification, fundraising, the audit itself.

Then, at filing time, the full $1,700 comes back to you as a dollar-for-dollar federal tax credit.

You were never out the money in any permanent sense. You simply decided where it went.

Trust, Then Verify — Annually

The 90% rule would be a slogan without enforcement, so the law adds a second layer: every SGO must obtain an annual financial and programmatic audit from a qualified independent third party.

It’s not a self-assessment. It’s an outside examination, every year, of whether the money went where the law requires.

Organizations must also verify family income before awarding scholarships, and they’re barred from earmarking: a donor can’t route a scholarship to a designated child. The money serves the mission, not private arrangements.

There’s even a privacy safeguard most donors won’t notice until they appreciate it: you’ll claim your credit using a unique donor number generated through an IRS-approved method, which means you never hand your Social Security number to an SGO.

The IRS can verify your credit is legitimate and the SGO never touches your most sensitive data.

The Rule’s Hidden Test

Here’s what few people outside the nonprofit world understand: the 90% rule is not just a promise to donors.

It’s a stress test for the organizations themselves. The law caps everything an SGO spends outside scholarships, marketing dollars included, at that dime on the dollar, roughly $170 per gift.

Organizations that must buy every donor from a standing start will struggle to stay inside the cap. The ones built to thrive are those that arrive with what money can’t efficiently buy: an existing national network, established relationships with schools and families, and infrastructure that was built for this program rather than bolted onto it.

When you compare SGOs, that’s the question to ask: does this organization have to spend my dime finding the next donor, or does it already know the way?

A Higher Bar Than Almost Anywhere in Philanthropy

Step back and the design is remarkable.

A 90% program-spending floor, verified by independent annual audit, with income-verified recipients, no earmarking, and donor privacy engineered in. This is a stricter accountability model than what governs most of American charity.

It exists because the model was refined over 25 years in the states before it went national, and because Congress understood that a program built on taxpayer trust has to be worthy of it.

So the answer to the donor’s eternal question, for once, is precise. How much of your $1,700 reaches the mission?

At least $1,530 — by federal law, checked by auditors, every year.