Federal scholarship donation credit expands on Ohio policy

Hannah News contributed to this report  

A tax policy supporting private schools that Ohio instituted in 2021 will soon be reflected at the national level under federal HR1, aka the One Big Beautiful Bill.  However, the state and federal policies have a few key differences. 

Congress enacted a nonrefundable tax credit for donations to scholarship granting organizations (SGOs), nonprofits that provide tuition assistance for private school students. Ohio lawmakers created a similar policy in the FY22-23 biennial budget, 134-HB110 (Oelslager). 

The new federal credit, set to take effect for tax year 2027, provides a credit of $1,700 per individual, compared to Ohio’s $750 scholarship donation credit ($1,500 on a joint return). Federal credits will be offset by any state credits claimed for the same donation. 

The federal law sets out different criteria for eligible SGOs than Ohio uses now. 

Under the federal law, an SGO must grant scholarships to at least 10 students who do not all attend the same school, and it must spend at least 90% of its income on scholarships for eligible families. 

Federal laws set an income threshold for families receiving these scholarships at 300% of the area gross median income. 

Ohio law under R.C. 5747.73, meanwhile, says an eligible SGO must primarily award scholarships to K-12 students and prioritize low-income students. The attorney general’s office, which oversees certification of SGOs in Ohio, developed administrative rules stating an SGO must spend at least 50% of program service expenses on awarding scholarships to be seen as “primarily” awarding scholarships. Rules further define low-income students as those from families earning under 300% of the federal poverty limit or receiving public assistance. 

Attorney General Dave Yost’s office lists SGOs certified in Ohio HERE. 

Ohio Department of Taxation (ODT) data show growth in the program from nearly 11,000 returns claiming almost $12 million in credits for 2022 to nearly 24,000 returns claiming $26.8 million in 2023, although ODT notes credit claims can in some cases exceed actual liability. The SGO credit is non-refundable, meaning people are not paid the excess credit once their tax liability goes to zero. 

The tax expenditure report prepared by ODT in advance of the FY26-27 budget deliberations estimates foregone revenues of $24.3 million in FY26 and $25.5 million in FY27 from the SGO credit. 

House Speaker Matt Huffman (R-Lima) recently spoke about the potential of the federal SGO credit while at the National Conference of State Legislatures (NCSL) summit in Boston, and he told Hannah News while there that he believes it will amount to “the biggest increase in school choice in the history of the country.” 

One key caveat is that states must opt in to participate in the federal credit. Gov. Mike DeWine’s office said only that he is reviewing the provision of the federal law.