SGO Rules & Compliance
Understand federal Section 25F requirements and state-specific SGO regulations.
Key Requirements
- Effective Date: January 1, 2027
- Maximum Credit: $1,700 per individual ($3,400 married filing jointly)
- Credit Type: Nonrefundable federal tax credit
- State Requirement: State must elect to be a "covered state"
SGO Requirements
- 90% Rule: At least 90% of contributions must be used for scholarships
- Income Limit: Students must be from households at or below 300% of Area Median Income
- Priority Tiers: Must prioritize students below 200% AMI, then 250% AMI
- No Earmarking: Donors cannot direct scholarships to specific students
State Election Process
States must submit Form 15714 (Advance Election) by January 1, 2026 for 2027 participation. They must then submit a certified list of eligible SGOs to the IRS. Without this list, donors in that state cannot claim the federal tax credit.
90% Spending Rule
At least 90% of all contributions received must be used for scholarships. Administrative costs cannot exceed 10% of contributions. CivilSteward tracks this in real-time on your compliance dashboard.
Income Eligibility Verification
Students must be from households at or below 300% of Area Median Income (AMI). CivilSteward automatically calculates AMI percentages based on household size and location using HUD data.
Priority Tier Enforcement
Scholarships must be awarded in priority order:
- Tier 1: Students below 200% AMI
- Tier 2: Students between 200-250% AMI
- Tier 3: Students between 250-300% AMI
Higher tiers can only be served after lower tier demand is met.
Anti-Earmarking Rules
Donors cannot direct their contributions to specific students or restrict scholarships to family members. Donations that violate anti-earmarking rules are not eligible for the tax credit. CivilSteward prevents disqualified persons from receiving scholarships funded by related donors.
IRS Listing Requirement
Your SGO must be listed on the IRS's official registry of eligible SGOs for your state. States submit this list to the IRS, and only contributions to listed SGOs qualify for the federal tax credit.
Audit Trail & Reporting
Maintain complete records of all donations, scholarship awards, and disbursements. CivilSteward automatically generates audit trails and compliance reports for state and federal requirements.
Eligible Expenses
- Tuition and required fees
- Textbooks and instructional materials
- Transportation to and from school
- School uniforms (if required)
- Educational technology and devices
- Tutoring and supplemental instruction
- Special education services
- Fees for standardized tests (SAT, ACT, etc.)
Ineligible Expenses
- Room and board (unless part of tuition)
- Athletic equipment or fees
- Extracurricular activities
- School trips and field trips
- Entertainment or recreational expenses
- Non-educational technology
- Home schooling expenses (varies by state)
- Capital improvements to schools