The same in every state, and doable today.
Become a 501(c)(3) public charity that meets the §25F operating rules. Every step is federal and none of it waits on your state. The six steps below walk through all of it.
Starting an SGO
How to start an SGO and accept the EFTC.
The federal Education Freedom Tax Credit (§25F) lets donors claim up to $1,700 a year, dollar for dollar, for giving to a Scholarship Granting Organization, starting January 1, 2027. Here is the plain-English path from zero nonprofit experience to a working SGO, and where the platform takes over the operational work so you stay inside the 10% cap.
The big picture
Starting an SGO is really two jobs.
One you can do today, on your own timeline. One you build toward and finish the moment your state opens its process.
The opt-in you build toward.
The credit only works once a participating state puts your organization on the list it sends to Treasury. That can be any state where you’re authorized to do business, not just the one you’re based in. Thirty states have opted in as of June 2026. Build the federal foundation now, and the platform alongside it, so you’re ready to take donations the day a state opens its process.
The federal path
Six steps you can take now.
The fees below are the government’s firm numbers. None of these steps wait on your state’s decision, so you can start today.
1
Incorporate the nonprofit
File articles of incorporation with your state (~$25-$125), name a registered agent, and seat at least three independent board members. Adopt bylaws and a conflict-of-interest policy.
2
Get an EIN
Your federal tax ID, free and immediate from the IRS. You need it to open a bank account and apply for tax exemption.
3
Apply for 501(c)(3) status
File Form 1023 ($600, ~3-6 months) or Form 1023-EZ ($275, ~2-4 weeks) if you qualify. Most SGOs exceed the EZ limits and file the full 1023. You must be a public charity, not a private foundation.
4
Open a separate bank account
§25F bars commingling: qualified contributions must sit in their own account, walled off from operating funds. This is the rule that makes a generic donor CRM or spreadsheet non-compliant, not just clunky, because they can't legally hold §25F funds. Open a dedicated account and segregate scholarship money from day one.
5
Register to fundraise
Most states require charitable-solicitation registration before you ask residents for donations. Register where you'll solicit, and renew annually.
6
Get on your state's list
The state, not you, files the §25F election and submits its list of qualifying SGOs to Treasury. Treasury's final regulations are still being written; existing state STO and SFO certification programs preview what your state will likely require.
The §25F bar
What makes you a qualifying SGO.
These operating rules come straight from the statute and apply in every state. §25F is a regime, not a tax form, so design your organization around these from the start.
- Serve 10 or more students who do not all attend the same school.
- Put at least 90% of income toward scholarships, with no more than 10% for administration (the 90/10 rule).
- Serve households at or below 300% of area median gross income (AMGI), verified.
- Pay only qualified K-12 education expenses (the Coverdell §530(b)(3) list).
- Honor renewal-then-sibling award priority, and never earmark a donation to a named child.
- Never award scholarships to insiders (no self-dealing).
Want the complete, start-from-nothing walkthrough?
Our sister site has the full guide: every step with costs, timelines, the separate-account rule, the state-list process, and a copy-paste checklist. Read: How to start an SGO.
Where the platform fits
The 90/10 cap is the catch, and software is how you stay under it.
Steps 1-6 stand up the organization. Everything after that (taking donations, verifying eligibility, awarding, disbursing, and reporting) has to happen inside a 10% administrative budget. Done by hand, that work breaks the cap, which is exactly why automation is the only way to legally operate under it. SGO Software runs it for you, so your job shrinks to two things: receive donations and choose scholarships. The platform does practically the rest.
Donations and §25F receipts
Collect donations by ACH and card, verify donor identity, and issue a compliant per-donor §25F receipt for every contribution automatically.
Income verification
Run the eligibility check against household income and family size at or below 300% of area median gross income (AMGI), the document-heavy work that otherwise eats your 10% budget.
Award engine
Enforce the renewal-then-sibling priority order, apply your criteria, and issue award letters without bending the rules by hand.
Separate-account accounting
Keep qualified contributions walled off and continuously prove the 90% spending test against the right base.
Disbursement tracking
Fund schools and providers from a per-student ledger that always reconciles, mid-year transfers included, so nothing leaves the separate account by mistake.
State and federal reporting
Produce the audit trail and the state and §25F reports from one ledger, correct by construction, instead of rebuilding them every cycle.
Starting one? Let’s talk.
We’ll walk your setup with you and show you exactly where the platform takes over, so you launch on the rails instead of migrating onto them later.
Be ready the day §25F donations open
January 1, 2027 is the same starting line for every SGO. See the platform built from the ground up for §25F: it turns every school you serve into a donor channel, then handles eligibility, disbursement, and reporting in one compliant system. You receive donations and choose scholarships, the platform does the rest.