Scholarships for Qualified Elementary or Secondary Education Expenses of Eligible Students

26 U.S.C. Sec. 139K | Congress | Enacted July 4, 2025

IRC Section 139K provides that gross income does not include amounts provided to an individual, or a dependent of that individual, under a scholarship for qualified elementary or secondary education expenses of an eligible student when the scholarship is provided by a scholarship granting organization. In plain terms, scholarships funded through the federal Education Freedom Tax Credit program are not treated as taxable income to the recipient student or family. By its terms, the exclusion applies to amounts received after December 31, 2026, in taxable years ending after that date.

Why this matters: For families weighing a scholarship, this section states that the awarded amounts are not counted toward gross income, and for schools and donors it sets out how the law treats those scholarship funds at the recipient level.