Gross income. Net income. Whose paycheck counts. Understanding the income rules is the first step to knowing whether your family qualifies for a scholarship.
What Does “Household Income” Actually Mean?
For K–12 scholarship eligibility, household income is measured against 300% of the Area Median Income (AMI) for your household size in your region. If your family’s gross income falls at or below that threshold, your child may qualify for a scholarship from a qualifying SGO.
That 300% figure is higher than many families expect. A household of four in many parts of the country has an AMI threshold that would surprise you. The program is designed to serve working and middle-income families — not just those in poverty. Many families who assume they won’t qualify actually do.
The key word throughout this process is gross income. Not what you take home. Not what’s on your tax return after deductions. Your total earned income before anything is withheld or adjusted.
Gross Income vs. Net (Take-Home) Income
This is the most common source of confusion in the eligibility process — and the one that causes the most families to underestimate (or overestimate) their likelihood of qualifying.
Gross Income
What SGOs Use to Determine Eligibility
- Total earnings before taxes or deductions
- Includes wages, bonuses, rental income, and more
- Example: A family earning $150,000/year in total wages
- This is the number that determines whether your family qualifies
Net / Take-Home Pay
What Hits Your Bank Account
- What remains after federal/state taxes, 401(k), and benefits
- That same $150,000 family might take home ~$105,000
- This is NOT what scholarship eligibility is based on
- Many families earn more than they realize in gross terms
A family earning $150,000 in gross wages might take home closer to $105,000 after federal and state taxes, health insurance premiums, 401(k) contributions, and other payroll deductions. Scholarship eligibility is based on that $150,000 figure — not $105,000. That distinction matters, and it’s why gathering the right documentation is important before assuming your family doesn’t qualify.
“Household income for scholarship eligibility is based on what your family earns — not what you take home after taxes. Many families who assume they don’t qualify are surprised to find they do.”
Income That Counts Toward the Eligibility Threshold
When calculating household income for K–12 scholarship eligibility, the following sources are generally included:
Income that counts toward the threshold
- Wages, salary, tips, and bonuses — all compensation from employment before deductions
- Self-employment income — freelance, contractor, gig work, and business income (generally gross, before expenses)
- Investment income — dividends, capital gains distributions, and interest received
- Rental income — money received from tenants or rental properties
- Retirement distributions — withdrawals from traditional IRAs, 401(k)s, pensions, and annuities
- Social Security benefits — retirement and disability payments received
- Alimony and child support received — regular court-ordered payments coming into the household
- Other regular income — unemployment benefits, workers’ compensation, and any other consistent income source
Income That Does NOT Count
Not everything that flows through your household finances counts as income for eligibility purposes. The following are generally excluded:
Income that does not count toward the threshold
- Student loans and financial aid — borrowed money that must be repaid is not income
- Gifts and inheritances — one-time transfers of money or property are generally not counted as household income
- Needs-based government assistance — SNAP, TANF, Medicaid, housing assistance, and similar programs are typically excluded
- Roth IRA contributions returned — because Roth contributions are made with after-tax dollars, qualified distributions are not counted as income
Whose Income Counts?
Household income is not just about one earner — it reflects the financial resources of everyone in the family unit living under the same roof. Here’s how that typically breaks down:
Whose Income Counts?
- Two-parent household — both parents’ income is combined into a single household total, regardless of how finances are managed separately
- Single-parent household — only the custodial parent’s income counts; a non-custodial parent’s income is generally not included (though child support received is)
- Multi-generational household — if grandparents or other adults live in the home and contribute financially, their income may be counted depending on the SGO’s household definition
Be the First to Know
Get notified when the Education Freedom Tax Credit launches so you don’t miss the opportunity to support K–12 students while benefiting from a federal tax credit.
Documentation You’ll Need
When you apply for a K–12 scholarship, the SGO will verify your household income against the eligibility threshold. Having the right documents ready makes the process smooth. Here’s what to gather:
Documentation You’ll Typically Need
- Most recent federal tax return (Form 1040) — the primary document for verifying household income
- W-2 statements — from all employers for every working adult in the household
- Recent pay stubs — helpful if household income has changed significantly since the last tax return was filed
- 1099 forms — for freelance, contractor, investment, or other non-wage income
- Social Security benefit statements — SSA-1099 forms documenting benefits received
- Pension and retirement account statements — documentation of distributions taken from retirement accounts
If your income has changed significantly in the current year — due to a job change, retirement, or major life event — recent pay stubs or a letter from an employer may supplement or replace prior-year tax documents.
How AFC Scholarship Fund Helps Families Navigate Eligibility
The AFC Scholarship Fund is a federally qualified scholarship granting organization (SGO) that distributes K–12 scholarships to eligible families. Those scholarships are funded by donor contributions made under the Education Freedom Tax Credit — a federal tax credit of up to $1,700 annually that donors claim when they give. The EFTC is the donor’s benefit; the scholarship is the student’s.
Families who receive scholarships go through an income verification process to confirm eligibility. Our team is here to walk you through exactly what counts, what documents you need, and whether your household qualifies — no guessing required.
Does Receiving a Scholarship Affect Your Other Tax Credits?
No. Receiving a K–12 scholarship for your child does not affect your eligibility for federal tax benefits. The scholarship goes to the student — it is not a tax credit for your family and has no bearing on what you claim on your federal return. That means families can benefit from a K–12 scholarship and continue to claim the Child Tax Credit, the Earned Income Tax Credit, and other federal benefits they qualify for.
To be clear on how these two things relate: the EFTC is a donor’s tax credit. When someone donates to a qualifying SGO like AFC Scholarship Fund, that donor claims a dollar-for-dollar federal tax credit of up to $1,700. The SGO then uses those funds to award scholarships to eligible families. Your family receives the scholarship; the donor receives the tax credit. They are completely separate benefits.
K–12 Scholarship
For the Student’s Family
- Awarded by an SGO using EFTC donor funds, based on household income
- Covers tuition at a private K–12 school of your choice
- Based on 300% AMI income eligibility threshold
- Not a tax credit — a direct scholarship to the student
Child Tax Credit
For Parents on Their Tax Return
- Federal credit for parents of qualifying children under 17
- Up to $2,000 per qualifying child
- Not affected by receiving a K–12 scholarship
- Claimed separately — these two benefits are fully stackable
What If My Income Fluctuates?
Income variability is common — especially for self-employed workers, seasonal employees, and families with investment or rental income. Scholarship applications typically use the most recent full tax year as the baseline, but many SGOs can accommodate families whose income has changed significantly since then.
If you had an unusually high-income year (a business sale, a large bonus, an inheritance) that pushed you above the threshold but your typical income is well below it, it’s worth contacting the AFC Scholarship Fund directly. Eligibility isn’t always as rigid as it might first appear, particularly for families whose income situation has materially changed.
Common Questions About Specific Income Types
401(k) and retirement contributions: Pre-tax 401(k) contributions reduce your taxable income on your tax return — but for K–12 scholarship eligibility, gross income (before that deduction) is what counts. Your full wages are included in the calculation.
Tax refunds: A federal or state tax refund is not new income — it’s a return of money you already earned and overpaid. Tax refunds do not count as household income for scholarship eligibility.
Home equity and property values: The value of your home or other property is not income. Unrealized appreciation, home equity, and asset values do not factor into your household income calculation. Only money actually received — earned or distributed — during the relevant period is counted.
The Bottom Line
For most families, the eligibility question comes down to one number: your total household gross income for the most recent full year. If that number falls at or below 300% of the AMI for your household size and region, your child may qualify for a K–12 scholarship funded through the EFTC — and the application process can confirm that definitively.
If you’re not sure whether you qualify, the best thing to do is apply or ask. The AFC Scholarship Fund team is available to help you work through the numbers before you submit a formal application.
