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 employees, 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.
Other 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
Act 2024-303
Alabama child tax credit 2024
Table of Contents
Alabama Employers Can Benefit from Tax Credit for Supporting Employee Childcare Needs
Act 2024-303, a new initiative in Alabama, provides a tax incentive to 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. This employer tax credit is administered by the Alabama Department of Revenue, and for-profit businesses operating in Alabama can qualify.
Provisions of the Employer Tax Credit
The tax credit program will be in effect from January 1, 2025, to 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 can claim this tax credit. Under this program, employers can claim a tax credit for 75% of the eligible childcare expenses incurred by employees, except for small businesses, which are eligible to claim a credit for 100% of their eligible expenses.
The tax credit can be applied against various taxes, including 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, eligible employers must reserve a credit allocation through My Alabama Taxes, incur eligible expenses for the calendar year in which the reservation is made, demonstrate support for employees eligible for the Earned Income Tax Credit (EITC) under the Internal Revenue Code, and submit required documentation as required by ALDOR.
Credit Reservation and Allocation
Starting March 1, 2025, eligible employers can reserve their credit allocations through My Alabama Taxes on a first-come, first-served basis. The tax credit has an annual aggregate cap: $15 million for 2025, $17.5 million for 2026, and $20 million for 2027. At least 25% of each annual cap is reserved for small businesses and employers headquartered in rural areas. ALDOR will award the employer credit on a first-come, first-served basis until the total annual cap is reached for all employers.
Other Provisions
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 and reviewed by ALDOR.
Benefits for Alabama Businesses
This tax credit initiative can benefit Alabama businesses in various ways. By supporting their employees’ childcare needs, employers can improve employee satisfaction, retention, and productivity. Additionally, the tax credit can help reduce the financial burden of providing childcare support, incentivizing more employers to offer this benefit.
Resources
For inquiries regarding eligibility and qualifications for the tax credit, please reach out to incentives@revenue.alabama.gov. Detailed instructions on how to make a reservation will be posted on the Alabama Department of Revenue website by January 1, 2025. Alabama employers interested in taking advantage of this tax credit should familiarize themselves with the provisions and requirements outlined in Act 2024-303.
Tax Credits in Alabama
Alabama offers various tax credits and abatements to benefit businesses, including credits for income taxes paid on income from another state [3[3[3[3[3[3[3[3]. Act 2024-303 is a significant addition to these incentives, supporting employers who invest in their employees’ well-being and contributing to the state’s economic growth.
By understanding the provisions and requirements of this tax credit, Alabama employers can take advantage of this valuable incentive and reap the benefits of supporting their employees’ childcare needs.
Alabama Employer Tax Credit: Supporting Childcare Needs of Employees
The Alabama Department of Revenue has introduced a new tax incentive for employers who support their employees’ childcare needs. This initiative, Act 2024-303, aims to encourage employers to provide financial assistance for childcare expenses or establish and operate childcare facilities for their employees with children five years old or younger. To qualify, for-profit businesses must operate in Alabama and meet specific eligibility criteria.
Provisions of Employer Tax Credit
The tax credit program will be in effect from January 1, 2025, to December 31, 2027, unless an extension is granted by the legislature. Employers can claim a tax credit for 75% of eligible childcare expenses incurred by employees, with small businesses (fewer than 25 employees) eligible for a credit of 100% of their eligible expenses [[3]].
The tax credit can be applied against various taxes, including income taxes, state portion of the Financial institution excise tax, insurance premiums tax, or utility license tax (for utility companies only). The credit is limited to $600,000 per year, and employers must reserve a credit allocation through My Alabama Taxes on a first-come, first-served basis [[2]].
Eligibility and Qualifications
To qualify for the credit, employers must:
- Reserve a credit allocation through My Alabama Taxes.
- Incur eligible expenses in the calendar year in which the reservation is made.
- Demonstrate support for employees eligible for the Earned Income Tax Credit (EITC) under the Internal Revenue Code.
- Submit required documentation as required by ALDOR.
Credit Reservation and Documentation
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 employers must submit documentation of their qualifying expenses to claim the refund on their tax returns. It is essential to note that reserving a tax credit does not guarantee receipt of the credit, and substantiating documentation must be submitted for the department’s review.
Annual Aggregate Cap and Reservation
The tax credit has an annual aggregate cap of $15 million for 2025, $17.5 million for 2026, and $20 million for 2027. At least 25% of each annual cap is reserved for employers that are small businesses or employers 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.
Other Provisions
Other key provisions of the employer tax credit include:
- ALDOR will award the employer credit on a first-come, first-served basis until the total annual cap is reached for all employers.
- 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.
Additional Incentives for Alabama Employers
Employers in Alabama may also be eligible for other incentives, such as the Heroes for Hire income tax credit, which provides a one-time income tax credit of $1,000 per new job paying over $10 per hour for businesses with 50 or fewer employees [[1]]. Additionally, the state offers various other tax credits and incentives to support business growth and development.
Conclusion
The Alabama Employer Tax Credit is a significant initiative aimed at supporting the childcare needs of employees and encouraging employers to invest in their workforce. By providing financial assistance for childcare expenses or establishing and operating childcare facilities, employers can not only benefit from the tax credit but also attract and retain top talent, improve employee productivity, and contribute to the overall well-being of their employees.
