Iowa School Tuition Organization Tax Credit

The Iowa School Tuition Organization (STO) Tax Credit is a program that provides individuals and businesses with tax credits for donations to scholarship organizations. These scholarships enable students to attend private schools, funded through private business donations rather than automatic public funding.

Program Type: Scholarship (funded via 75% tax credits for donors)

What It Supports: Iowa nonprofits (STOs) collect tax-credited donations from individuals and businesses to award scholarships directly to low- and middle-income families for private school tuition.

Who It Serves:

• Students from families with household income at or below 400% of the Federal Poverty Level (FPL) ~$124,800 for a family of four in 2024–25
• No prior public school attendance requirement
• Scholarships available to any accredited private school

Scholarship Amounts:

• Average scholarship: $2,062 (2022–23 data)
• Scholarship amount determined by individual STOs
• Capped only by student’s annual tuition
• No universal maximum; depends on donations received and STO allocation

How It Works:

1. Donors (individuals or businesses) contribute to a registered STO (a Section 501(c)(3) nonprofit)
2. Iowa grants a 75% state tax credit on the donation amount
3. The credit is non-refundable (can only offset existing tax liability, not generate a refund)
4. STOs use donations to fund scholarships for eligible students

Donor Incentive: A $1,000 donation to an STO is worth a $750 tax credit to the donor—effectively reducing the cost of the donation to $250 while fully funding a scholarship.

How Families Access Scholarships:

1. Family identifies an accredited private school of choice
2. School directs family to one of the 12 active STOs covering that school
3. STO determines scholarship eligibility (income limit: ≤400% FPL) and awards a scholarship
4. Scholarship payment flows directly to the school; family does not handle funds
5. Families do not donate; donors receive the 75% tax credit

Program Scale:

• 12 active STOs serving approximately 143 participating schools (2021–22 data)
• Approximately 10,239 students received scholarships in 2022–23
• Total annual program cap: $20 million in tax credits
• Once cap is reached, no new credits issued for that year; waitlists may form

Program Rules:

• STOs must allocate at least 90% of annual revenue to scholarships
• STOs must serve more than one school and cannot limit scholarships to a single institution
• Participating schools must be accredited nonpublic Iowa schools
• STOs must register with the Iowa Department of Revenue

Application Timing: Varies by organization; typically year-round or rolling basis. Contact individual STO or participating private school for specific deadlines. Early application increases likelihood of award during high-demand periods.

Combining with ESA: Yes! A student using an ESA can also receive an STO scholarship, provided both serve the same private school and the student meets STO income eligibility (≤400% FPL). Example: ESA covers $7,988 of a $10,000 tuition; STO scholarship covers remaining $2,012. Result: Family tuition cost reduced significantly or eliminated.

Iowa Department of Education – STO Information →