Act 2024-303 provides a tax incentive to Alabama employers who support their employees’ childcare needs by offering financial assistance for childcare expenses or establishing and/or operating childcare facilities for their employees with children five years old or younger. The Alabama Department of Revenue is the administering agency for the employer tax credit. To qualify, for-profit businesses must operate in Alabama. For inquiries regarding eligibility and qualifications for the tax credit, please reach out to incentives@revenue.alabama.gov
Provisions of Employer 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.
- Employers who provide financial assistance for childcare expenses to their employees or establish and/or operate childcare facilities for their employees are eligible to claim this tax credit. Under this program:
- An employer may claim a tax credit for 75 percent of the eligible childcare expenses incurred by an employer, except for small businesses, which are eligible to claim a credit for 100 percent of their eligible expenses. Small businesses are employers that have fewer than 25 employees.
- An employer is eligible to receive a tax credit for qualifying expenses up to $600,000 per year that can be applied against:
- Income taxes;
- State portion of the Financial institution excise tax;
- Insurance premiums tax; or
- Utility license tax (for utility companies only)
- To qualify for the credit, an eligible employer must
- Reserve a credit allocation through My Alabama Taxes through a first-come, first-served reservation system.
- Incur eligible expense for the calendar year in which the reservation is made.
- Demonstrate that they prioritize supporting employees who are eligible for the Earned Income Tax Credit (EITC) under the Internal Revenue Code.
- Submit required documentation as required by ALDOR.
- The tax credit must be claimed in the tax year in which the eligible expenses are incurred.
- The tax credit has an annual aggregate cap: $15 million for 2025, $17.5 million for 2026, and $20 million for 2027, of which 25 percent of each annual cap is reserved for employers that are small business and employers that are headquartered in rural areas. Any reserved credits that are not fully allocated by these specific employers by July 1 of each year will be reallocated to other applicants.
Credit Reservation:
Starting March 1, 2025, eligible employers 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, employers 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 1, 2025. In the meantime, please direct any inquiries to incentives@revenue.alabama.gov.
Additional provisions include:
- ALDOR will award the employer credit on a first-come, first-served basis until the total annual cap is reached for all employers. However, at least 25 percent of the total credits will be reserved for employers that are small businesses or employers headquartered in rural areas.
- Employers must provide detailed documentation to substantiate their claims, including receipts, contracts with childcare providers, payroll records, and other relevant information as required by ALDOR.
- An employer’s reserved credit will not be awarded until all required documentation is submitted to and verified by ALDOR. Any and all credits that have been reduced or denied upon verification shall be reallocated to those employers that were next in line for the reservation of credits.
- The employer 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 refundable credit to their owners based on each owner’s pro rata share.
Procedures for Employer Tax Credit
Additional Resources