Alabama’s Historic Child Care Tax Credit Lands on Governor Ivey’s Desk

Child care is now a top priority for Alabama lawmakers. So lawmakers approved a bill that would provide tax breaks to businesses that help families afford child care. Alabama’s Child Care Tax Credit would also help businesses struggling to find workers.

Child Care Tax Credit Bill – What Does It Provide?

On Tuesday, the state Senate approved House Bill 358, the Child Care Tax Credit Act, by a vote of 31-0. The child care tax credit bill is currently on Governor Kay Ivey’s desk for final approval. The bill has the support of more than 45 organizations, businesses and trade associations.

If approved, the program would begin in 2025 and end on December 31, 2027. Lawmakers will evaluate the program’s costs and effectiveness to decide whether to extend it.

HB358, sponsored by Representative Anthony Daniels and Senator Garlan Gudger, would provide tax breaks to businesses that provide or assist with child care for their employees.

Specifically, the child care tax credit bill sets aside $15 million in tax credits that can be claimed by companies that provide child care assistance to their employees, such as child care stipends, on-site child care, or reservations at licensed facilities.

The proposal also calls for providing tax credits and subsidies to providers to improve the quality and expand availability of child care. Child care providers registered with the Department of Human Resources’ Quality Assessment and Improvement System can claim a tax credit of up to $25,000 per year.

Additionally, Alabama’s Child Care Tax Credit provides $5 million in grants to nonprofit providers to help them expand capacity and improve quality.

Alabama’s Child Care Tax Credit – What Do You Need?

Advocates for the bill say the high cost of child care is preventing many parents from returning to work and that the new bill would directly address that problem. It will also help businesses that are having trouble finding talent.

“This is about getting working moms back to work, especially Alabama workers,” Senator Gudger said on the floor of the Legislature.

According to the Women’s Foundation of Alabama, approximately 85,000 households in the state will need access to affordable child care in 2022. The Women’s Foundation estimates the state’s total investment over the next three years would be $82.5 million if the new child care legislation were fully phased in. The bill has the potential to affect approximately 58,000 households.

Alabama’s labor force participation rate was 57.7% in March, according to the Federal Reserve Bank of St. Louis, and the national participation rate was 62.7% in April, according to Bureau of Labor Statistics data.

Separately, the Alabama Senate on Tuesday approved HB 346, which would create the Employee Housing Tax Credit Act and a tax credit for housing projects. The bill passed 34-1.