Alaska Scholarship Granting Organization Application

1. What is the Federal Scholarship Tax Credit (FSTC)?

The Federal Scholarship Tax Credit is a federal program beginning January 1, 2027, that allows eligible individual taxpayers to receive a federal income tax credit for qualifying cash contributions to Scholarship Granting Organizations (SGOs). These nonprofit organizations use contributions to provide scholarships to eligible K–12 students for qualified educational expenses.

2. Is Alaska participating in the program?

Yes. Alaska has elected to participate in the Federal Scholarship Tax Credit Program beginning in 2027. The Alaska Department of Education and Early Development (DEED) is responsible for reviewing organizations seeking inclusion on Alaska's approved SGO list.

3. Which states are participating?

State participation is voluntary and subject to annual federal requirements. A current list of participating states will be maintained by the IRS. Taxpayers may contribute to eligible SGOs in participating states regardless of their own state of residence.

4. Is this a state-funded scholarship program?

No. Scholarships are funded through private contributions to qualifying nonprofit organizations. The federal government provides eligible taxpayers with an income tax credit for qualifying contributions.

5. Are scholarships limited to students attending private schools?

No. Eligible students attending public, private, or religious schools may qualify for scholarships for approved educational expenses. Scholarships are not limited to private school tuition.

6. What is DEED's role in the program?

DEED reviews organizations seeking inclusion on Alaska's approved SGO list, maintains state program information, and fulfills applicable state reporting responsibilities. DEED does not receive contributions, select scholarship recipients, or administer individual scholarship programs.

SGOs establish and administer their scholarship programs, verify eligibility, and make scholarship award decisions.

7. Who is eligible to receive a scholarship?

Generally, students must reside in a participating state, be eligible to enroll in an elementary or secondary school, and meet federal household income requirements. Household income for the preceding calendar year must not exceed 300% of the applicable area median gross income.

Individual SGOs may establish additional scholarship selection criteria consistent with federal requirements.

8. Does my family have to be considered low-income to qualify?

Not necessarily. The federal income eligibility threshold is 300% of the applicable area median gross income, which may include families with a broad range of household incomes. Eligibility depends on household income and the applicable geographic income limits.

9. Can students attending public schools qualify?

Yes. Eligible public school students may receive scholarships for qualified educational expenses, including certain tutoring, instructional materials, technology, and other allowable costs, subject to federal requirements and the SGO's program.

10. Can students in rural Alaska qualify?

Yes. Eligible students throughout Alaska may qualify. Scholarship availability will depend on participating SGOs and the educational expenses supported by their programs.

11. Can homeschool or correspondence students qualify?

Yes, however, eligibility for certain educational arrangements, including homeschool and correspondence programs, remains subject to additional federal clarification. Families should review current guidance and contact participating SGOs regarding their programs.

12. What educational expenses qualify for scholarships?

Federal law limits scholarships to qualified elementary and secondary education expenses described in Internal Revenue Code Section 530(b)(3)(A).

Depending on applicable requirements, these may include:

• Tuition and fees
• Academic tutoring
• Special needs services for qualifying students
• Books, instructional supplies, and equipment
• Room and board
• School uniforms
• Transportation
• Supplemental items and services, including extended-day programs
• Computers, educational technology, and internet access

Certain expenses must be required or provided by the school in connection with enrollment or attendance. Not all expenses will qualify in every circumstance, and individual SGOs may offer scholarships for only certain allowable expenses.

13. Can scholarships cover computers and internet access?

Yes, qualifying computer technology, equipment, internet access, and related services may be eligible. Software designed primarily for sports, games, or hobbies generally does not qualify unless predominantly educational.

14. Can scholarships support students with disabilities?

Yes, certain special needs services may qualify as educational expenses. Eligibility depends on federal requirements and the scholarship program. Scholarships do not replace a public school's legal obligation to provide required educational services. Additional federal guidance may clarify how scholarships can be used in specific circumstances.

15. How do families apply for scholarships?

Families apply directly to participating SGOs, not DEED. Each organization establishes its application process, eligibility documentation, deadlines, and scholarship award procedures consistent with federal requirements.

16. Does meeting the eligibility requirements guarantee a scholarship?

No. Scholarship awards depend on available funding, the number of applicants, and the individual organization's scholarship criteria and selection process.

17. Can a student receive a scholarship in consecutive years?

Yes. Federal law requires SGOs to give priority to eligible students who received scholarships from the organization during the preceding school year. However, priority does not guarantee another award.

18. Do siblings receive priority for scholarships?

Yes. After giving priority to eligible students who received scholarships in the preceding school year, SGOs must give priority to eligible students whose siblings received scholarships from the organization during that year.

19. Can families receive scholarship funds directly?

Scholarship payments must comply with applicable federal requirements. Proposed regulations address payments to schools and qualifying vendors, reimbursements for properly documented expenses, and certain restricted digital payment arrangements. Families should follow the SGO's procedures before incurring expenses.

20. Where can families find available scholarships?

Families can review Alaska's approved SGO directory and contact participating organizations directly to learn about scholarship opportunities, application dates, and eligibility requirements.

21. What is a Scholarship Granting Organization (SGO)?

An SGO is a qualifying nonprofit public charity that receives contributions and awards scholarships to eligible elementary and secondary students for qualified educational expenses.

22. What types of nonprofit organizations can become SGOs?

Existing educational foundations, community-based nonprofits, and other qualifying charitable organizations may be eligible if they meet applicable federal requirements. Organizations should evaluate their mission, activities, financial structure, and scholarship programs before applying.

23. Does an organization have to establish a new nonprofit to participate?

Not necessarily. An existing nonprofit may qualify if it satisfies all applicable federal requirements, including the scholarship expenditure requirements. Organizations with multiple programs should carefully evaluate the 90% expenditure requirement and proposed 85% safe harbor and how these requirements apply to their operations.

24. What is the 90% scholarship expenditure requirement?

Federal law requires SGOs to spend at least 90% of their applicable income on scholarships for eligible students.

Generally, this requirement applies to the organization's income from all sources, not just contributions received under Section 25F, unless an applicable exception applies.

For example, an organization with $100,000 in income subject to the requirement must spend at least $90,000 on qualifying scholarships.

25. What is the proposed 85% scholarship-activity safe harbor?

Proposed federal regulations provide a safe harbor for certain organizations that devote at least 85% of their activities to scholarship granting.

Organizations meeting this requirement may qualify to apply the 90% expenditure requirement only to income maintained in their separate Section 25F account, rather than to all organizational income.

The 85% activity requirement and 90% expenditure requirement are separate tests. This safe harbor remains subject to final federal regulations.

26. Does setting aside 90% of income for future scholarships satisfy the requirement?

Not necessarily. The expenditure requirement concerns amounts spent on qualifying scholarships, rather than simply designated or reserved for future awards. Organizations should review applicable federal rules concerning the timing of scholarship expenditures.

27. How many students and schools must an SGO serve?

SGOs must award scholarships to at least 10 eligible students who do not all attend the same school. An SGO cannot award scholarships only to students attending one school.

Providing other educational services to 10 or more students does not satisfy this requirement unless scholarships are actually awarded to the required number of eligible students.

28. Can an SGO provide scholarships for only certain educational expenses?

SGOs have discretion to establish scholarship programs focused on particular qualifying educational expenses, subject to federal requirements. For example, an organization may choose to focus on tutoring, instructional materials, or other allowable expenses.

29. Does an SGO have to provide scholarships for private school tuition?

No. SGOs may support other qualifying elementary and secondary educational expenses. Scholarships are not limited to private school tuition.

30. Can an SGO focus on students in a particular community or region?

SGOs have discretion in designing scholarship programs, subject to federal requirements concerning eligible students, geographic participation, scholarship priorities, and other applicable restrictions.

31. Can a school district foundation become an SGO?

A separately organized educational foundation may qualify if it meets applicable federal eligibility and operational requirements.

32. Can Alaska Native organizations or tribal organizations become SGOs?

Yes, organizations may qualify if they meet the applicable federal requirements, including qualifying nonprofit status and the program's scholarship distribution and financial requirements.

33. How must SGOs verify student eligibility?

SGOs are responsible for verifying that scholarship recipients meet applicable federal requirements, including household income limitations.

Proposed regulations address verification through income documentation, specified categorical eligibility methods, and limited safe harbors.

34. Are SGOs required to give priority to certain students?

Yes. Federal law requires SGOs to give priority first to eligible students who received scholarships in the preceding school year and then to eligible students whose siblings received scholarships from the organization during that year.

35. Must SGOs maintain separate financial accounts?

Yes. SGOs must maintain qualifying Section 25F contributions separately from other organizational funds in accordance with applicable federal requirements. Proposed regulations provide additional accounting and recordkeeping details.

36. Are SGOs required to undergo annual audits?

SGOs must comply with applicable federal financial reporting and audit requirements. Proposed regulations address annual independent audits and potential thresholds. Organizations should review current federal guidance to determine which requirements apply.

37. How may SGOs distribute scholarship funds?

Under proposed federal regulations, SGOs may use approved payment methods, including payments to schools or qualifying vendors, reimbursements for properly documented expenses, and certain restricted digital payment arrangements.

Unrestricted payments to families are not permitted under the proposed rules.

38. Can an SGO operate in multiple states?

Federal regulations contemplate multistate SGOs, subject to applicable state participation, accounting, scholarship administration, and reporting requirements.

39. Can an organization apply if its IRS 501(c)(3) status is pending?

Temporary federal regulations provide a pathway for certain organizations with qualifying pending IRS applications, subject to specific conditions. Organizations should contact DEED regarding required documentation.

40. How does a nonprofit apply to become an SGO in Alaska?

Organizations should submit:

• A letter of interest signed by an authorized representative, including an attestation of current and ongoing compliance with applicable federal requirements.
• A copy of the organization's IRS 501(c)(3) determination letter or applicable documentation for a qualifying pending application.

Application materials should be emailed to SGO@alaska.gov.

41. Does DEED approval complete the process for becoming an SGO?

No. Organizations must also complete applicable IRS registration and reporting requirements. Inclusion on Alaska's approved list does not, by itself, establish that all federal requirements have been satisfied.

42. Does an SGO need an Alaska business license?

Organizations must comply with applicable Alaska laws governing their activities. DEED is reviewing how state business licensing and registration requirements apply to organizations seeking inclusion on Alaska's SGO list. Additional guidance will be provided as appropriate.

43. Does DEED provide funding to SGOs?

No. SGOs receive private contributions and are responsible for administering their scholarship programs.

44. Who can claim the Federal Scholarship Tax Credit?

The credit is available to eligible individual taxpayers who make qualifying cash contributions to SGOs. Corporations and partnerships do not claim the credit directly. Proposed regulations address how certain contributions made through pass-through business entities may be treated for eligible individual owners.

Businesses may be able to contribute, but the tax treatment of business contributions depends on the type of entity and applicable federal rules.

45. How much is the federal tax credit?

Eligible individual taxpayers may receive a dollar-for-dollar federal income tax credit of up to $1,700 annually. Proposed regulations address a combined credit of up to $3,400 for married couples filing jointly.

46. Is the tax credit refundable, and can unused credits be carried forward?

The credit is not refundable and cannot exceed the taxpayer's applicable federal income tax liability. Unused credit amounts may generally be carried forward for up to five years, subject to federal requirements.

47. Can taxpayers claim both the federal tax credit and a charitable contribution deduction?

A contribution for which a federal tax credit is allowed under Section 25F cannot also be claimed as a federal charitable contribution deduction under Section 170.

48. Do donors need to designate contributions for the Section 25F credit?

Taxpayers seeking the federal credit should follow the SGO's designated contribution procedures and clearly identify contributions intended to qualify under Section 25F. Contributions must meet applicable federal documentation requirements.

49. Can taxpayers contribute to more than one SGO?

Yes. Eligible taxpayers may make qualifying contributions to multiple SGOs, but the annual credit limitation applies to their combined qualifying contributions.

50. Do taxpayers have to live in Alaska to contribute to an Alaska SGO?

No. Eligible taxpayers may contribute to qualifying SGOs in participating states regardless of their own state of residence.

51. Can a donor designate a particular student to receive a scholarship?

No. Donors cannot designate a particular student, and federal law prohibits SGOs from earmarking or setting aside qualifying contributions for scholarships on behalf of particular students.

52. Does a state tax credit affect the federal credit?

Yes. The federal credit is reduced by any applicable state income tax credit allowed for the same qualifying contribution.

53. Can taxpayers claim the credit for contributions made in 2026?

No. The federal credit applies to qualifying contributions beginning January 1, 2027.

54. Does donating $1,700 guarantee a $1,700 federal tax credit?

No. The actual credit depends on the taxpayer's eligibility, applicable federal limitations, and federal income tax liability.

55. Can a contribution to any nonprofit qualify for the credit?

No. Contributions must be made to eligible SGOs that satisfy applicable state listing, IRS registration, and other federal requirements.

DEED approval alone does not establish that an organization has completed IRS registration. Taxpayers should confirm that an organization meets all applicable federal requirements before making a contribution intended to qualify for the credit.

56. How do taxpayers claim the credit?

Taxpayers must follow applicable IRS filing instructions and retain required documentation from the SGO. Additional information regarding federal forms and reporting procedures will be available through the IRS.