Alabama ​Childcare Facility Tax Credit

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.

Provisions of​ Facility Tax ‌Credit

• Effective January 1, 2025, the tax credit program will be in effect until December 31, 2027.
• 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.
• 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:
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  • 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.

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.

Additional Provisions

• ALDOR will award the facility tax credit on a first-come, first-served basis once the required documentation is submitted.
• 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.
• 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.

Additional⁤ Resources

For more​ information, please refer to ​Act 2024-303.