States

The Federal Scholarship Tax Credit in Arizona

Last updated: October 2026. Arizona has not opted in.

Where things stand

Arizona has not opted in to the Federal Scholarship Tax Credit. Governor Katie Hobbs vetoed three separate opt-in bills in 2026:

• SB 1106 (budget bill), vetoed January 16
• SB 1142 (standalone opt-in bill), passed the Senate 16-11 and the House 33-26, vetoed April 13
• HB 4152 (tax omnibus), vetoed May 5

In her veto message for SB 1142, Hobbs said signing before federal guidance was issued would be "irresponsible." Treasury released the implementing regulations on October 1, 2026. On that same day, 35 Republican lawmakers wrote to Hobbs urging her to opt in unilaterally. No response has been reported.

Paths to opting in

A veto override is arithmetically impossible. It would need 20 Senate votes and 40 House votes. Republicans hold 17 and 33. The legislature has adjourned with no special session signaled.

That leaves two paths before the January 1, 2027 deadline:

• Hobbs acts alone. Federal law lets the governor or her designee file the election directly with the IRS. No legislation needed.
• The November 2026 election. The Republican nominee for governor, Andy Biggs, favors opting in.

Arizona already has universal school choice

Arizona runs a universal Empowerment Scholarship Account (ESA) program, open to every K-12 student in the state since 2022. About 104,644 students are enrolled for 2026-27, with roughly $1.1 billion in annualized funding. Awards run about $7,000 to $9,000 per student per year.

Arizona also has long-running state tax credit programs for donations to School Tuition Organizations (STOs). For 2026, individual donors can claim up to $787 ($1,570 married) under the original credit and $784 ($1,561 married) under the switcher credit.

For scale: Florida's state programs serve around 560,000 students, more than five times Arizona's ESA enrollment. Arizona's program is notable for being truly universal in eligibility, not for being the largest.

How the federal credit would interact

This is where it gets complicated for Arizona donors. Under proposed federal rules, the federal credit is reduced by any state tax credit claimed on the same dollars. An Arizona donor who gives to an STO and claims the state credit (up to $3,131 married) would effectively zero out the federal credit on those dollars.

For families, whether a federal SGO scholarship can stack with ESA money is unresolved. Arizona's ESA contract bars families from taking state STO scholarships at the same time. No federal rule specifically bars stacking with an ESA, but federal rules do prohibit duplicate payments for the same expense. Whether federal scholarships can be combined with ESA funds has not been clarified in final regulations.

Income limits if Arizona joins

Students would qualify if household income is at or below 300% of the area median income. For a four-person household in the Phoenix-Mesa-Glendale area, that works out to roughly $310,800 per year based on HUD FY2026 data. Statewide, the average is around $316,000 for a family of four.

Estimates based on HUD FY2026 income data. The IRS has not published official 2027 figures, and the income calculation method comes from proposed federal regulations, not final rules.

Who would run this in Arizona

No agency is currently designated. The vetoed SB 1142 would have assigned the role to the Arizona Department of Revenue, which already certifies School Tuition Organizations for the state programs. That makes ADOR the natural candidate if Arizona opts in.

No Arizona organization has announced plans to serve as a federal SGO, which is expected given that the state has not opted in. Likely candidates include established STOs such as ACSTO, Catholic Education Arizona, and Arizona Tuition Connection, but none have made announcements.

Key dates

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