New Alabama Law Makes Quality Childcare More Affordable

For some, the cost of childcare can be a barrier to entering the workforce. Recent Alabama legislation (HB358 included in the Working for Alabama package) is designed to help bring down the cost of quality childcare, thereby allowing many to enter the workforce.

What is the childcare tax credit?

Beginning in 2025, Alabama employers will be able to receive a tax credit when they pay for the childcare expenses of eligible employees (earning under $80,000 per year). For small businesses with less than 25 employees, the credit is 100% of eligible expenses. For larger businesses, the credit is 75% of eligible expenses. This employer tax credit is capped at $600,000 per year per employer. 

How does the tax credit benefit employers?

For businesses, assisting employees with the cost of quality childcare may be a way attract and retain employees. Employers who take advantage of the tax care credit by covering childcare expenses for employees now have one more benefit to offer, making them more competitive in today’s workforce. For many hard workers, the cost of childcare is a big factor affecting where they work, or if their family can even afford the childcare to allow them to work.

The childcare tax credit benefits childcare facilities, too!

A tax credit is also available to childcare providers.  The facility tax credit is capped at $25,000 per facility and depends on the number of eligible children the facility serves, and a ranking system maintained by the Alabama Department of Human Resources. For eligible nonprofit childcare providers, funding may be awarded in the form of a grant of up to $50,000 per year.

Childcare Tax Credit limits and lifetime

The State will allow a total of $15 million in tax credits for calendar year 2025. The State budget will cap the credit at $17.5 million in 2026 and $20 million in 2027. If this incentive is successful in helping Alabamians obtain work, the Legislature may extend this law. If not, the law will sunset at the end of 2027.

How to take advantage of the childcare tax credit

Setting up a childcare coverage policy is the first step in taking advantage of this new legislation. Contact one of our trusted advisors for more information on establishing and implementing this credit, so that your 2025 tax credit is secured.