Glossary

Tax-credit scholarship

A program giving donors a tax credit for contributions to nonprofit organizations that fund private school scholarships.

Also called: scholarship tax credit, educational choice tax credit, federal tax credit scholarship

A tax-credit scholarship program lets individuals or businesses reduce their state tax bills by donating to scholarship-granting organizations, which then give scholarships to students to attend private schools. The funds come from private donations, though the credit reduces state revenue.

Pennsylvania and Florida were early adopters in 2001, and many states now have versions; their credits typically cover a large percentage of the donation, sometimes 100 percent. Because the money passes through private donors, advocates say it avoids state-constitutional restrictions on direct aid to religious schools. In Arizona Christian School Tuition Organization v. Winn (2011), the Supreme Court held that taxpayers lacked standing to challenge such a credit, and in Espinoza v. Montana (2020), it held that a state may not exclude religious schools from such a program once created.

A federal tax-credit scholarship was enacted in the 2025 tax law, starting in 2027, allowing states to opt in. Supporters say that credits expand options without direct spending and that they encourage private giving, while critics say they are public money by another name that reduces revenue and lacks oversight. See school choice and school voucher.

Last reviewed November 8, 2026

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Related terms

School choice Policies that let families use public education funds or tax benefits to select schools beyond their assigned district school. School voucher A government-funded certificate that lets a family pay for tuition at a private school, including religious schools, instead of the local public school. Education savings account A state-funded account that parents can use for private school tuition, tutoring, homeschooling costs and other approved education expenses. Tax expenditure A provision of the tax code, such as a deduction or credit, that reduces tax owed to encourage a behavior, functioning like government spending. Establishment Clause The First Amendment clause barring Congress from making any law respecting an establishment of religion.