Four Alabama Tax Credits To Know: New and Recently Updated Programs

Alabama has introduced several new tax credits and made targeted changes to others, creating new opportunities in some cases and shifting how certain incentives should be evaluated in others. Taxpayers may find that credits they have never used are now worth considering or that familiar credits no longer work the same way they have in the past.

This article walks through four key Alabama tax credits currently in focus, outlines what has changed and explains why those changes are relevant.

Rural Hospital Investment Program

The Rural Hospital Investment Program is a new Alabama tax credit, effective beginning in January 2026, created to support hospitals serving rural and underserved communities.

Under this new program, taxpayers can contribute funds to eligible rural hospitals and receive an Alabama state tax credit in return. The structure is similar to other contribution‑based credit programs, where funds are directed to a specific purpose and the donor receives a state tax benefit.

To participate, hospitals must be located in a federally designated rural area and must serve Medicare, Medicaid and low‑income patients. Participating hospitals are also required to submit a five‑year financial plan for approval. Qualified donors can include individual taxpayers, married taxpayers, pass‑through entities, corporations, financial institutions, insurance companies and utility taxpayers.

Individual donations are capped at $30,000 for joint filers, $450,000 for pass-through entities and $500,000 for donations. In addition, there is an overall statewide cap of $20 million in tax credits for 2026, $25 million in 2027 and $30 million thereafter. The statewide cap has already been met for 2026.

Although the benefit of the program flows to eligible rural hospitals, donor participation is not limited to healthcare organizations or healthcare‑related taxpayers. As a result, the credit may be relevant to a wide range of Alabama taxpayers and businesses with Alabama tax liability that are looking to support rural healthcare while also utilizing a state tax credit.

Employer Tax Credit for Childcare

The Employer Tax Credit for Childcare (originally introduced in Alabama in 2024) encourages employers to support childcare expenses for their employees.

The statewide credit cap, originally set at approximately $15 million, will now be indexed to increase over time and is expected to grow through 2027. At the taxpayer level, the credit continues to allow up to $600,000 per taxpayer on a first-come, first-served basis.

The credit applies to a broad range of childcare‑related costs. Employers may use it to support employee childcare through stipends or payments to childcare facilities, and childcare facility owners may also claim the credit for costs associated with operating or improving their facilities.

Additional requirements have become clearer as the program has been implemented. When tied to employee stipends, the credit applies only to employees earning $80,000 or less in base wages and requires verification that payments are made to Alabama Department of Human Resources‑certified facilities. The program also reserves 25% of the statewide credit cap for rural areas and small businesses with 25 or fewer employees.

The credit requires advance reservation and documentation, and it is refundable only for childcare facility owners. For other employers, the credit is non‑refundable, which can affect its overall value.

Alabama Accountability Act Tax Credit

The Alabama Accountability Act allows taxpayers to receive an Alabama income tax credit for contributions made to a student scholarship organization (SGO). Under this structure, funds are contributed to an SGO, which then uses those contributions to provide scholarships for eligible schools.

While the basic mechanics of the SGO credit have not changed, the allowable credit amounts and limitations have expanded. For the 2025 tax year and beyond, individuals and married couples may now receive a credit equal to 100% of their Alabama income tax liability, up to $100,000 annually. This represents a significant increase from prior limits, which were previously capped at $50,000 and limited to 50% of tax liability.

For Alabama C corporations, the credit may be claimed up to 100% of Alabama income tax liability with no dollar cap, expanding the potential benefit for corporate contributors. Credits generated through SGO contributions are also eligible for a three‑year carryforward if not fully used in the year earned.

The program is subject to an overall $40 million annual statewide cap, and credits are allocated on a first‑come, first‑served basis.

The CHOOSE Act

The CHOOSE Act is an Alabama tax credit that allows eligible families to claim credits for private school and home education expenses.

The CHOOSE Act, originally introduced in 2024, is available beginning with the 2025–2026 school year, which is also the first tax year in which the credit may be claimed. The program has $100 million in funding annually.

Under the program, taxpayers may receive up to $7,000 per child in Alabama income tax credits for private school tuition if certain criteria are met. For students participating in a home education program, the credit is currently $2,000 per participating student.

Eligibility is initially income‑based. To qualify in the first year of participation, a household’s adjusted gross income may not exceed 300% of the federal poverty level for the preceding tax year (which for a family of four is approximately $96,000).

While income limits apply at the outset, those restrictions do not remain in place for the full life of the credit. Beginning with the 2027–2028 academic year and beyond, the CHOOSE Act no longer includes the 300% federal poverty level income limitation, meaning that after the initial years of the program, eligibility is no longer tied to household income.

Learn More About Alabama Tax Credits Available to You

While each of these credits can be impactful, they are also highly fact‑specific. Eligibility, credit amounts, timing requirements, statewide caps and refundability can vary significantly depending on a taxpayer’s income, entity structure, industry and overall Alabama tax profile.

Because Alabama’s tax credit landscape continues to evolve, and because small details can materially change outcomes, taxpayers should discuss with an advisor. Thoughtful evaluation can help ensure credits are used effectively, when available, and in a way that aligns with broader planning goals.

To learn more about these state tax credits and how they may apply to you, contact your Warren Averett advisor directly.