Alabama’s refundable tax credit program was enacted 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 refundable tax credit 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 children from failing public schools to non-failing public or accredited private schools are eligible. Parents with children who are starting school for the first time in Alabama and zoned to attend failing public schools 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.
The most glaring weakness of Alabama’s individual tax-credit program is its eligibility restrictions. Instead of basing participation on whether an entire school is “failing,” as measured by an arbitrary, changeable state metric, participation should be permitted whenever a parent determines that a child’s educational needs are not being met at the current school. Only 5 percent of students in the state can take advantage of the credit because of these restrictions.
Alabama also should consider amending this program to allow more money to follow participating students. The amount of money parents receive through Alabama’s credit is less than the average funding parents receive through private school choice programs in other states. The credit is worth up to 80 percent of what the state spends per student. Despite these funding shortfalls, eligible Alabama students may take advantage of both the Education Scholarship Program and this program, increasing their scholarship value. However, few families are taking advantage of that opportunity. The sending public school keeps the remaining 20 percent of state funding in addition to any local or federal money associated with the cost of educating the transferring student. An effective next step would be to enable banks to give tax anticipation loans to parents who cannot front the money to pay for tuition, allowing more students to access schools of choice. An even greater step for Alabama is to allow all of the state money to follow the child to his or her school of choice.
Ala. Code §§ 40-2A-7(a)(5) and 16-6D
On March 2, 2015, the Alabama Supreme Court ruled, in an 8-1 decision, that the Alabama Accountability Act enacted in 2013, which includes Alabama’s refundable tax credit and tax credit scholarship program, is constitutional. The high court overturned a May 2014 lower court ruling by the Montgomery County Circuit court which initially struck down the Alabama Accountability Act. Magee v. Boyd, 175 So.3d 79 (Ala. 2015).
Also, in April 2014, a U.S. District Judge dismissed a separate lawsuit brought by the Southern Poverty Law Center challenging the Alabama Accountability Act on grounds the school choice program violated equal protection. C.M., et al., v. Robert J. Bentley, M.D.; et al., 13 F.Supp.3d 1188 (M.D. Ala. 2014)