Historic Child Care Tax Credit from Alabama Lands on Gov. Ivey’s Desk

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Childcare is now a priority for Alabama lawmakers. Thus, lawmakers have approved legislation that offers tax breaks to businesses that help families afford childcare. The Child Care Tax Credit from Alabama will also help businesses that are struggling to find workers.

Child Care Tax Credit bill – what does it offer?

On Tuesday, the state Senate approved House Bill 358 – Child Care Tax Credit bill – with a 31-0 vote. The Child Care Tax Credit bill is now on Gov. Kay Ivey’s desk for final approval. The legislation enjoys the support of more than 45 organizations, businesses, and trade associations.

If approved, the program would start in 2025 and end on Dec. 31, 2027. Lawmakers will evaluate the cost and effectiveness of the program to determine whether or not to extend the program.

Sponsored by Rep. Anthony Daniels and Sen. Garlan Gudger, HB358 will offer tax breaks to businesses that provide or help their employees with childcare services.

Specifically, the Child Care Tax Credit bill sets aside $15 million in tax credits, which can be claimed by companies offering childcare assistance to employees, such as childcare stipends, on-site daycare or reserved spots at licensed facilities.

Additionally, the proposal calls for providing tax credits and grants to providers to improve the quality and expand the availability of childcare. Up to $25,000 in yearly tax credits can be claimed by childcare providers who are registered with the Department of Human Resources Quality Rating Improvement System.

The Child Care Tax Credit from Alabama will also offer $5 million in grants to nonprofit providers to help them expand their capacity and improve quality.

Child Care Tax Credit from Alabama – what’s the need?

Advocates of the legislation say that high childcare costs prevent many parents from returning to the workforce, and the new legislation would directly address this issue. Also, it will help businesses that are facing challenges in finding workers.

“What this does is get working mothers, especially, is get workers in the state of Alabama back to work,” Sen. Gudger said on the floor of the chamber.

According to the Women’s Foundation of Alabama, about 85,000 families in the state needed access to affordable childcare in 2022. The Women’s Foundation estimates the state’s total investment to be $82.5 million over the next three years if the new childcare bill is fully phased in, and that the legislation has the potential to impact about 58,000 families.

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

Separately, the Alabama Senate on Tuesday approved HB 346, which creates the Workforce Housing Tax Credit Act and tax credits for housing projects. The bill passed 34-1.