Roughly twenty states already run their own scholarship tax credit programs, some of which have operated for well over a decade. The arrival of the federal Education Freedom Tax Credit (EFTC) raises an obvious question for donors and families in those states: how do the two relate, and can a donor benefit from both?
The basic difference is which government is paying for the credit
The EFTC is claimed against federal income tax, is uniform nationwide at up to $1,700, and is available in any state whose governor has opted into the federal program. State scholarship tax credits are claimed against state tax, and each state designs its own program: its own cap, its own credit percentage, and its own eligibility rules. The two systems are independent of each other, and a state’s decision to participate in one has no bearing on whether it also has, or lacks, the other.
Donors can generally benefit from both, with one important limit
A donor cannot use the same donated dollars to claim both a federal credit and a state credit; that would be a double benefit for a single gift. What a donor can do is make two separate donations, one to a federally qualified Scholarship Granting Organization (SGO) such as AFC Scholarship Fund, claimed on the federal return, and a separate donation to a state-program-qualified organization claimed on the state return. Done that way, both credits are available, each tied to its own gift.
For families, this isn’t an either-or choice
A family can potentially apply for scholarships funded through either program, or both, depending on what exists in their state, since the eligibility rules differ between them. State programs often have longer track records and more established application processes; the federal credit may open scholarship access in states that never had their own program at all.
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For donors, three things are worth planning around
The federal credit’s 100% dollar-for-dollar rate and five-year carryforward make it efficient giving even for donors with modest federal tax liability. Where a donor’s dollars ultimately go differs: federal credit dollars stay within states that have opted into the federal program, while state credit dollars stay within that state’s own program. And because both program types can have enrollment windows or annual caps, donors who want to use both should plan their giving early in the year.
State scholarship tax credit programs are not going away because of the new federal credit
They were enacted independently, for state-level reasons, and continue to operate on their own terms. The federal credit adds a new, nationwide option; it doesn’t replace what states have already built.
Generally yes, as long as you make two separate donations and don’t use the same dollars for both. One gift to a federally qualified SGO can be claimed on your federal return, and a separate gift to a state-program-qualified organization can be claimed on your state return.
It depends on your state and your own tax situation. The federal credit is a uniform $1,700 dollar-for-dollar credit nationwide. State credits vary widely in cap and percentage, and some states have no scholarship credit program at all. Combined, the value for a donor in a state with a strong program can be substantial.
No. State programs were created independently under state law and continue regardless of the federal credit’s existence. The two are additive, not competing.
