Alabama’s refundable tax credit program was passed and launched in 2013. Different from traditional tax credit programs, refundable tax credits have greater utility for parents of more modest incomes. Learn more about the program on this page, including eligibility, funding, regulations, legal history, and more.
Alabama provides a tax credit or rebate to parents who transfer their children enrolled in or assigned to a failing public school to a non-failing public or private school.
Parents receive a tax credit worth the lesser of (1) 80 percent of the average annual state cost of attendance for a K–12 public school student during the applicable tax year or (2) their children’s actual cost of attending school. If the taxes owed by the parents are less than the total credit allowed, they may receive a rebate equal to the balance of the unused credit.
Parents who transfer their child from a failing public school to a non-failing public or accredited private school are eligible. Parents with a child who is starting school for the first time in Alabama and zoned to attend a failing public school are also eligible. Alabama defines a public school as failing if it meets one or more of the following requirements: The school is labeled as persistently low-performing by the Alabama State Department of Education; the school is designated as a failing school by the state Superintendent of Education; the school does not exclusively serve a special population of students; or the school has been listed three or more times during the most recent six years in the lowest 6 percent of public K–12 schools on the state standardized assessment in reading and math.
Ala. Code §§ 40-2A-7(a)(5) and 16-6D
In May 2014, the Montgomery County Circuit Court struck down the Alabama Accountability Act, which contains the Parent-Taxpayer Refundable Tax Credit program. Judge Gene Reese ruled the Act violated provisions in the Alabama Constitution concerning the manner in which legislation must be passed and that it also violated provisions restricting the use of public funds. The Alabama Attorney General’s Office and the Institute for Justice, a public interest law firm that represents parents participating in the Accountability Act’s school choice program, appealed the decision to the Alabama Supreme Court. On March 2, 2015, the court upheld the constitutionality of the Alabama Accountability Act. The refundable tax credit and tax-credit scholarship programs continue to operate while the Alabama Supreme Court reviews the trial court’s ruling. Also, in 2014, a U.S. District Judge dismissed a separate lawsuit that challenged the Alabama Accountability Act on grounds the school choice program violated equal protection. Boyd v. Magee, C.M., et al., v. Robert J. Bentley, M.D.; et al.