Alabama lawmakers have made childcare a key focus by passing legislation that offers tax incentives to businesses supporting families with childcare expenses. This new Child Care Tax Credit is also designed to aid businesses struggling to recruit workers.
The state Senate recently passed House Bill 358, also known as the Child Care Tax Credit bill, with unanimous approval. The bill now awaits final approval from the governor. The legislation has garnered widespread support from over 45 organizations, businesses, and trade associations.
If enacted, the program will begin in 2025 and conclude on December 31, 2027, with a review period to assess its cost and effectiveness to determine potential extensions.
Sponsored by representatives and senators, HB358 provides tax incentives to businesses that offer or assist employees with childcare services. The bill allocates $15 million in tax credits, which companies can claim if they provide childcare assistance such as stipends, on-site daycare, or reserved spots at licensed facilities.
The bill also proposes tax credits and grants to childcare providers to enhance service quality and availability. Registered providers can claim up to $25,000 in annual tax credits through the Department of Human Resources Quality Rating Improvement System. Additionally, $5 million in grants will be available to nonprofit providers to help them expand capacity and improve service quality.
Proponents argue that high childcare costs prevent many parents from re-entering the workforce, and this legislation aims to address that barrier. It is also expected to assist businesses facing worker shortages.
The Women’s Foundation of Alabama reports that approximately 85,000 families in the state needed affordable childcare in 2022. If fully implemented, the new bill is estimated to require an investment of $82.5 million over three years and could benefit around 58,000 families.
In March, Alabama’s workforce participation rate stood at 57.7%, compared to the national rate of 62.7% in April.
In a related move, the Alabama Senate also approved a bill creating the Workforce Housing Tax Credit Act, which provides tax credits for housing projects.