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What Are Tax-Credit Scholarships?

Privately funded education scholarships powered by state tax incentives — helping families access private schools without using public funds directly.

Understanding Tax-Credit Scholarships

A tax-credit scholarship program allows individuals and businesses to donate to approved Scholarship Granting Organizations (SGOs) and receive a state tax credit in return. The SGOs then use these donations to fund scholarships for eligible students to attend private schools.

Unlike vouchers, which use public funds directly, tax-credit scholarships are funded entirely by private donations. The state's role is limited to providing the tax credit incentive. This distinction makes them politically viable in states where direct public funding for private schools faces opposition.

How Tax-Credit Scholarships Work

1

Donors Contribute

Individuals or businesses donate to approved Scholarship Granting Organizations (SGOs). In return, they receive a state tax credit — often dollar-for-dollar.

2

SGOs Award Scholarships

The SGO pools donations and awards scholarships to eligible students based on program criteria such as income, special needs, or geographic location.

3

Family Applies

Families apply through the SGO, providing income verification and student information. Approval timelines vary by state and organization.

4

Scholarship Pays Tuition

Once approved, the scholarship is paid directly to the participating private school, covering part or all of tuition costs.

What Do Tax-Credit Scholarships Cover?

Tax-credit scholarships are primarily designed for private school tuition. Some programs also cover related fees. The coverage is narrower than ESAs but provides targeted support for families choosing private education.

Private School TuitionRegistration FeesRequired TextbooksTransportation (some states)

Pros and Cons

Advantages

No cost to taxpayers — funded by private donations

Donors receive tax credits, encouraging contributions

Multiple SGOs create competition and choice

Well-established in many states

Considerations

Funding depends on donor participation

Often limited to tuition and fees only

Income limits may exclude middle-class families

Scholarship amounts may not cover full tuition

States with Tax-Credit Scholarship Programs

AlabamaArizonaFloridaGeorgiaIndianaIowaKansasLouisianaMontanaNew HampshireOklahomaPennsylvaniaSouth CarolinaVirginia

Frequently Asked Questions

What is the difference between a tax-credit scholarship and a voucher?
Vouchers use public funds directly, while tax-credit scholarships are funded by private donations. Donors receive state tax credits as an incentive, so the funding comes from redirected tax revenue rather than direct government spending.
Who funds tax-credit scholarships?
Private individuals and businesses fund these scholarships by donating to Scholarship Granting Organizations (SGOs). In return, they receive state tax credits — often equal to 100% of their donation — reducing their tax liability.
Do tax-credit scholarships have income limits?
Most tax-credit scholarship programs are means-tested, meaning families must fall below a certain income threshold to qualify. Common limits range from 185% to 400% of the Federal Poverty Level, depending on the state.
How much do tax-credit scholarships typically cover?
Award amounts vary by state and SGO, typically ranging from $4,000 to $8,000 per student. Some programs cover full tuition at participating schools, while others provide partial scholarships.
Can I apply to multiple SGOs?
In many states, families can apply to multiple Scholarship Granting Organizations to increase their chances of receiving an award. However, students generally cannot receive duplicate scholarships for the same expenses.

Check Your Eligibility

Use our calculator to see if your family qualifies for tax-credit scholarships or other school choice programs in your state.

Eligibility Calculator