A new tax credit boosts K-12 scholarships via SGOs, expanding private education access. Schools must navigate regulations and best practices.
The recently passed One Big Beautiful Bill Act (OBBBA) includes a new federal tax credit for contributions to scholarship granting organizations (SGOs) — nonprofit organizations whose primary mission is to provide scholarships to eligible K–12 students attending qualified private schools.
Under the new law:
To qualify, SGOs must:
Schools themselves may not qualify as SGOs unless they meet the “substantially all” test — meaning nearly all activities must relate to awarding scholarships. Most schools will need to partner with or create a separate nonprofit SGO.
If your school is considering launching an SGO, here are key steps:
Despite the promise of SGOs, several challenges may arise:
Given the requirement to grant scholarships to 10 individuals from different schools, it may not make sense for a school to create an SGO for the benefit of its students. However, associations, foundations, school support organizations, etc. may be interested in developing these programs or entities where multiple schools can benefit.
The SGO provision in the One Big Beautiful Bill Act offers a powerful opportunity to expand access to independent school education. With thoughtful planning and strategic execution, schools can position themselves to benefit from this new landscape — while delivering meaningful impact to families and communities.
CLA’s nonprofit professionals can help you assess the implications of these changes and develop strategies to adapt. If you’d like help drafting donor communications, setting up an SGO, or modeling tax scenarios, reach out to a CLA advisor.
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