A new federal scholarship tax credit takes effect on January 1, 2027, and Tucson donors have started asking whether it changes anything for local schools such as those served by CTSO or IBE. As of late October 2026, the short answer is that Arizona is not taking part, so the federal credit cannot yet fund scholarships for students who live in Pima County. This post explains where things stand, what a Tucson taxpayer can still do, and how the federal credit differs from the state tax credits Arizonans already use.
Is Arizona in the federal scholarship tax credit program for Tucson families?
No. The IRS list of states that have elected to participate for 2027, dated October 22, 2026, names 30 states, and Arizona is not among them. Neighbors such as Colorado, Nevada and Utah are on it.
The IRS explains that a state must choose to participate and give the IRS a list of approved Scholarship Granting Organizations before any taxpayer can claim the credit for gifts to an SGO in that state. Without an election, there is no Arizona SGO list, and no path for the new money to reach students in Tucson, Marana or Sahuarita.
Why hasn't Arizona opted in to the federal credit?
Gov. Katie Hobbs has vetoed the opt-in measures sent to her. KJZZ reported that on April 13, 2026 she vetoed SB 1142, sponsored by Sen. Shawnna Bolick of Phoenix, writing that it would be irresponsible to join before the federal government created clear regulatory guidance. EFTC Credit, an independent tracker, also lists vetoes of SB 1106 in January 2026 and of a budget bill carrying an opt-in in May 2026, and says her office stated in August that she had taken no position for or against the program.
Bolick told KJZZ that legislation is not strictly needed if the governor is willing to opt in. According to the same tracker, Treasury released its rules on October 1, 2026, and a state that wants in for 2027 must file an advance election with the IRS by January 1, 2027 and submit its SGO list by February 15, 2027. States elect one year at a time, so later years remain open whatever happens this winter.
Can a Tucson taxpayer still claim the federal scholarship tax credit in 2027?
Yes, but the money would leave Arizona. The IRS says that starting January 1, 2027 an individual may claim a credit of up to $1,700 for qualified cash gifts to an approved SGO in a participating state, and married couples filing jointly may each claim $1,700, for $3,400 on a joint return. The credit is nonrefundable and is claimed on Form 8525.
EFTC Credit notes that under Treasury's proposed rules, scholarships from a state's SGOs go to students who live in that state, with narrow exceptions for military and tribal families. A Tucson donor giving to a Utah or Nevada SGO would therefore be funding students there, not at a school on Speedway or in the Catalina Foothills.
How does the federal credit compare with Arizona's STO tax credits for Tucson donors?
The state credits are available now and keep money local; the federal one is not available for Arizona students. The Arizona Department of Revenue's figures make the contrast clear.
| Feature | Arizona STO credits (tax year 2026) | Federal scholarship tax credit (2027) |
|---|---|---|
| Status for Arizona students | Operating; many Tucson schools take STO awards | Not available: Arizona has not elected in |
| Individual limit | Original $787 single / $1,570 joint; switcher $784 / $1,561 | Up to $1,700 per taxpayer; $3,400 joint when each spouse gives |
| Timing | Gifts in 2026 or Jan. 1 to April 15, 2027 can count for 2026 | Gifts on or after Jan. 1, 2027 |
| Who receives the money | Certified Arizona School Tuition Organizations | SGOs on a participating state's list |
ADOR also notes that a gift made between January 1 and April 15, 2027 must go on the 2027 return if the donor wants the higher 2027 limits of $797 single and $1,589 joint for the original credit. Our Tucson STO scholarship guide covers how families apply, and the earlier post on giving to CTSO, IBE and other STOs walks through the 2026 giving season.
What should Tucson families and schools watch before January 1, 2027?
Watch for an advance election from the governor's office. That is the one action that could still bring Arizona in for 2027, because the IRS deadline for advance elections is January 1. Until it happens, Tucson families should plan around the tools that exist today: the Empowerment Scholarship Account and STO awards. A family cannot hold an STO scholarship concurrently with an ESA in the same contract year, so it helps to compare the two before applying. Our page on the federal tax credit in Arizona will be updated if the state's status changes.
Last verified: October 2026
Common questions
Is Arizona in the federal scholarship tax credit program for Tucson families?
No. The IRS roster of states participating for 2027, updated October 22, 2026, lists 30 states and does not include Arizona. Until the state elects in and submits a list of Scholarship Granting Organizations, gifts under the new federal credit cannot fund scholarships for students who live in Tucson or elsewhere in Arizona.
Why hasn't Arizona opted in to the federal credit?
Gov. Katie Hobbs vetoed SB 1142 in April 2026, saying it would be irresponsible to join before federal rules were issued, and trackers report earlier vetoes as well. Treasury released rules on October 1, 2026. A governor can still file an advance election for 2027 by January 1, 2027, and states decide year by year.
Can a Tucson taxpayer still claim the federal scholarship tax credit in 2027?
Yes. Beginning January 1, 2027, any individual can claim up to $1,700, or $3,400 on a joint return when each spouse gives, for cash gifts to an approved SGO in a participating state. Because Arizona is not participating, that money would fund students who live in another state, not Tucson students.
How does the federal credit compare with Arizona's STO tax credits for Tucson donors?
Arizona's STO credits operate now: up to $787 single or $1,570 joint for the original credit and $784 or $1,561 for the switcher credit in tax year 2026, with gifts through April 15, 2027 eligible. They fund Arizona School Tuition Organizations. The federal credit is larger per taxpayer but currently cannot help Arizona students.
Sources
- IRS: Federal Scholarship Tax Credit, participating states for 2027
- IRS: Federal Scholarship Tax Credit (FSTC) overview
- Arizona Department of Revenue: Credits for contributions to certified School Tuition Organizations
- KJZZ: Hobbs vetoes proposal to opt Arizona into tax credit program (April 14, 2026)
- EFTC Credit: Arizona status tracker
- A.R.S. 15-2402: ESA contract terms
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