Act 2024-303 provides a tax incentive to Alabama childcare providers who own and operate a qualified childcare facility licensed by the Alabama Department of Human Resources and participate in the Quality Rating and Improvement System and Child Care Subsidy Program. The Alabama Department of Revenue is the administering agency for the facility tax credit. For inquiries regarding eligibility and qualifications for the tax credit, please reach out to incentives@revenue.alabama.gov.
Provisions of Facility Tax Credit include:
- Starting on January 1, 2025, the tax credit program will be in effect until December 31, 2027, unless an extension is granted by the legislature.
- An eligible childcare provider may receive a tax credit of up to $25,000 per year to be utilized against:
- Income taxes;
- State portion of the financial institution excise tax;
- Insurance premiums tax; or
- Utility license tax (for utility companies only)
- The credit will be based on the average monthly number of eligible children enrolled and the facility’s quality rating under the Alabama Quality STARS program:
- Five-star rating: $2,000 per child.
- Four-star rating: $1,750 per child.
- Three-star rating: $1,500 per child.
- Two-star rating: $1,250 per child.
- One-star rating: $1,000 per child.
- The tax credit shall be claimed in the tax year during which the childcare facility’s quality rating is in effect and eligible children are enrolled. An eligible child is a child that is five years old or younger.
- The tax credit has an annual aggregate cap of $5 million per year for all childcare providers, of which 25 percent is reserved for childcare facilities operating exclusively in rural areas. Any reserved credits that are not fully allocated for these specific childcare facilities by July 1 of each year will be reallocated to other applicants.
Credit Reservation:
Starting March 1, 2025, eligible childcare providers can reserve their credit allocations through My Alabama Taxes. Reservations will be on a first-come, first-served basis and based on the eligibility criteria outlined in the Act. Once a credit is reserved, childcare providers must submit documentation of their qualifying expenses to claim the refund on their tax returns.
Please be advised that reserving a tax credit does not guarantee that you will receive the credit. Substantiating documentation must be submitted for the department’s review in order to qualify for the credit.
Detailed instructions on how to make a reservation will be posted on this page by January 2025. In the meantime, please direct any inquiries to incentives@revenue.alabama.gov.
Additional provisions include:
- ALDOR will award the facility tax credit on a first-come, first-served basis once the required documentation is submitted. However, 25 percent of the total available credits will be reserved for childcare facilities operating exclusively in rural areas.
- Childcare providers must provide detailed documentation to substantiate their credit claim, including ownership verification, quality rating of the facility, and the average number of eligible children attending each facility monthly for the calendar year.
- The facility credit will not be awarded until all required documentation is submitted and verified by ALDOR. Failure to provide the required documentation will result in the automatic denial of the credit.
- The tax credit is refundable and any unused tax credits may not be carried forward to subsequent tax years.
- Pass-through entities eligible for the credit must distribute the credit to their owners based on each owner’s pro rata share.
Procedures for Facility Tax Credit
Additional Resources