Treasury's June 2026 Section 25F Preview: Every Item, Explained

On June 9, 2026, the Deputy Assistant Secretary for Tax Policy delivered remarks previewing the regulations Treasury intends to propose under Section 25F — the federal scholarship tax credit program created by the One Big Beautiful Bill Act. The remarks were released publicly the next day, and they are the most detailed picture yet of how the program will actually operate when it goes live on January 1, 2027.

Treasury has said proposed regulations will be issued no later than the end of September 2026, and that states, SGOs, and taxpayers will be able to rely on them for tax year 2027. Until then, everything below is previewed rather than final — but organizations forming now cannot wait for September to make structural decisions, and the preview resolves several questions that had been genuinely open since IRS Notice 2025-70 requested public comment last fall.

One naming note before diving in, because search results are genuinely confusing on this point: the IRS's official label for the program is the Federal Scholarship Tax Credit (FSTC), press coverage often calls it the Education Freedom Tax Credit, and the statutory citation is Section 25F. All three names refer to the same program. This site uses the statutory cite.

This post walks through every item in the preview. Several deserve — and have — their own deep dives, linked throughout.

The Safe Harbor for the 90% Test

The single most consequential item. Section 25F requires an SGO to spend at least 90% of its income on scholarships. Notice 2025-70 had anticipated that "income of the organization" would mean all income — including unrelated business income, and not limited to the contributions sitting in the segregated scholarship account. Read literally, that position made SGO status structurally impossible for any organization with meaningful non-scholarship revenue.

The June preview introduces a safe harbor: if an organization's activities are largely scholarship-granting, its income for the 90% test may instead be measured by the amount held in its Section 25F segregated account, including qualified contributions and earnings. For a multistate SGO, the safe harbor must be satisfied separately for each state-specific account.

The practical consequence is a structural one: organizations with diversified revenue should form a separate, dedicated scholarship-granting entity rather than housing the SGO inside an existing organization. We cover the mechanics, the reasoning, and the remaining ambiguity in our full analysis of the safe harbor.

The Multistate Rules: One Entity, Many State Accounts

The preview confirms that a single 501(c)(3) can appear on more than one participating state's list, so long as it is "located in" each state — meaning authorized to do business there and compliant with generally applicable state charitable-organization rules, with no physical presence required — and maintains a separate Section 25F account for each state. States may not impose SGO-specific requirements more restrictive than Section 25F itself.

What the preview does not permit is a national pool. Each dollar is designated to a state by the donor and locked to that state's account, funding only students who reside there. The 90% test runs per account. There is no cross-subsidy between states.

This is the most commonly misunderstood part of the program, and it drives everything from committee design to which states an organization should operate in. The full breakdown is here.

The Audit Requirement

Every SGO must obtain an annual financial and programmatic audit performed by a qualified independent third party, furnished to each covered state on whose list the organization appears. The stated intent is that states can rely on the audit rather than each building its own compliance-review apparatus.

Two details matter operationally:

• The audit is entity-level, not per-state. A multistate SGO performs one audit and furnishes it to each of its states. The largest recurring compliance cost does not multiply with geographic footprint — a significant point in favor of a broad multistate entity over separate organizations per state.
• Smaller SGOs get a streamlined alternative. The audit may instead be performed by an internal committee unrelated to management, with the report signed under penalties of perjury. For a new SGO's early years, this materially lowers the compliance cost floor.

The word "programmatic" deserves attention. This is not only a financial statement audit — it examines whether the organization's award process, income verification, and disbursement practices actually complied with the program's requirements. Documentation practices should be designed with that reviewer in mind from day one.

The Definition of a School

Consistent with the Section 530 (Coverdell) framework, eligible schools include public, private, and religious K-12 schools as determined under state law. Two clarifications in the preview:

• Homeschools count where they are treated as schools under state law. Because state homeschool law varies widely, this is a state-by-state analysis — but the door is open.
• Tribal schools qualify.

Income Verification: A Generous Menu

Section 25F limits scholarships to students in households at or below 300% of area median gross income. The preview describes a flexible verification regime: paystubs, tax returns, IRS transcripts, W-2s, or commercial data sources are all acceptable.

Beyond documentation, the preview adds categorical eligibility: a household qualifies if a member participates in a needs-based federal, state, or tribal program whose income limits are at or below the Section 25F threshold. Foster children qualify without separate verification. Treasury is also considering an additional area-based safe harbor for students attending schools in low-income areas.

For SGOs, this menu is good news — it means verification workflows can meet families where they are rather than demanding a single document type. Our guide to the 300% AMI requirement covers the underlying eligibility math.

The Unique Donor Number

This item has no analogue in existing state tax-credit scholarship programs, and it is a hard product requirement for every SGO's donor systems.

The SGO must issue each donor a timely written acknowledgment of annual contributions that includes a unique donor number, generated under an IRS-provided method. The SGO reports donor and contribution data to the IRS using that number, and the taxpayer reports the same number on their federal return. The IRS matches the two. The design goal is to enable credit verification without SGOs collecting Social Security numbers.

Every SGO's receipting, reporting, and donor-records infrastructure will need to implement this. Organizations evaluating software should be asking vendors specifically how they intend to support it.

Duplicate-Award Prevention

States are expected to prevent duplicate awards to the same student for the same expense. One approach the preview contemplates is a formal scholarship acceptance in which the family certifies that no other award covers that expense. Expect acceptance certifications to become a standard artifact in the award workflow.

An IRS SGO Portal, Phased In

Treasury previewed a planned IRS portal for SGOs, to be phased in over time. Details are thin, but the direction is toward centralized federal reporting infrastructure — another reason SGO record systems should be built for structured export from the start.

Qualified Expenses: A Separate Workstream

Guidance on the scope of Section 530 qualified expenses — what scholarships can actually pay for — will follow as a separate workstream after the Section 25F proposed regulations. Treasury did state its intent that scholarships cover additive academic tutoring and special needs services. Until that guidance lands, the existing Coverdell framework remains the operating reference.

Selection Committees and Disqualified Persons

The preview signals that a member of an SGO's selection committee — or a member of that person's immediate family — will be treated as a disqualified person who cannot receive scholarships from that SGO, under rules similar to the private-foundation self-dealing framework. Whether that disqualification applies organization-wide or state-by-state for a multistate SGO is one of the most consequential open questions in the program, and it deserves board-level attention before committees are seated. We cover the committee architecture question in depth here.

What the Preview Did Not Answer

The preview is substantial, but several questions remain genuinely open until the September proposed regulations:

• Whether payment processing fees reduce the safe-harbor income base or must come out of the 10% administrative allowance — our analysis of the fee problem explains why this matters more than it sounds.
• How shared expenses are allocated across a multistate SGO's state accounts. There is no guidance at all; a documented, consistent methodology is the only defensible interim position.
• Whether disqualified-person status is organization-wide or per-state.
• Whether the ten-students / multiple-schools test applies per state account or in aggregate.
• Whether there will be start-up cost relief or multi-year smoothing for the 90% test — Notice 2025-70 asked the question, which tells you Treasury knows year one is hard.
• How "substantial contributor" will be defined, and what happens when a donor fails to designate a state.

What to Do With This

Three moves make sense for organizations forming now.

Build on what is settled. The statutory requirements — 501(c)(3) status, the ten-student multi-school distribution, no earmarking, income verification at 300% of area median gross income, the priority for returning students and siblings — are not going to change. Neither, realistically, is the basic multistate architecture the preview describes.

Design flexibly where Treasury has not answered. Committee structure, expense allocation methodology, and undesignated-gift handling should all be built so they can flex when the September regulations land, not poured in concrete now.

Document methodology decisions before the fact. Where you must take a position on an unsettled question — and every operating SGO must — record the rationale contemporaneously. A programmatic auditor in 2028 will care less about whether your interpretation was ultimately adopted than about whether it was reasonable, consistent, and documented when you made it.

The September proposed regulations should settle most of the open list. We will publish a full analysis when they do — the newsletter signup below is the fastest way to get it, and the state opt-in tracker stays current in the meantime.