Alabama House committee passes child care tax credit bill

An Alabama House committee Tuesday approved a bill that would extend tax credits to employers and child care providers with an aim of making child care more available. 

HB 358, sponsored by House Minority Leader Anthony Daniels, D-Huntsville, would offer the tax credits from 2025 to 2027. The bill’s goal is to encourage employers to fund child care and enable providers to offer more available child care for children under the age of five.  The legislation would also offer grants to some nonprofit childcare providers.

“This is a way to generate capital for the child care providers, which has been their struggle, they don’t make a lot of income, right?” Susan Kennedy, a representative of the Women’s Foundation of Alabama, told the Alabama House Ways and Means Committee on Tuesday. “So they don’t pay as much tax because they’re basically breaking even, right? So a non-refundable tax credit for the childcare provider community would not be very meaningful.”

The bill is part of the Working for Alabama package, which aims to raise the state’s low workforce participation rate. Alabama’s workforce participation rate in January was 57.1%, according to the St. Louis Federal Reserve. The national rate was 62.5%, according to the Bureau of Labor Statistics. The state’s participation rates have trailed the nation’s at since at least 1976.

Experts told a commission in October that a lack of access to child care could contribute to Alabama’s low workforce participation rate.

Daniels brought a substitute Tuesday which he said will focus “on helping smaller facilities.” The substitute was not online as of Tuesday.

The bill as passed includes employer tax credits that cannot exceed $600,000 per year per employer. A facility tax credit cannot exceed $25,000 per year per facility.

Employer tax credits are equal to 75% of the eligible expenses. If the employer has fewer than 25 employees, the credit will be 100%.

The amount of money available for tax credits would rise over time. In 2025, total employer tax credit is capped at $15 million. It would rise to $17.5 million in 2026 and $20 million in 2027. 

Child care providers can apply for a facility tax credit based on the amount of children they have and a facility ranking system maintained by the Alabama Department of Human Resources:

• Five stars: $2,000 per eligible child
• Four stars: $1,750 per eligible child
• Three stars: $1,500 per eligible child
• Two stars: $1,250 per eligible child
• One star: $1,000 per eligible child

The total facility tax credit is capped at $5 million. 

The Alabama Department of Revenue will create rules to reserve at least 25% of the employer tax credits for rural businesses or businesses with fewer than 25 employees and 25% for child care providers operating in rural areas.

The credit for the child care provider is refundable. Kennedy said that will help providers. The employer tax credit is not refundable.

Rep. Danny Garrett, R-Trussville, the chair of the committee, said that there was a lot of work on the bill in the last week, including from the Women’s Foundation.

“This is one of the new solutions and ways that we can actually incentivize both businesses and employers who are already doing the right thing and others who want to by investing in childcare for their employees, and also by investing in the industry,” said Melanie Bridgeforth, president and CEO of the Women’s Foundation, to reporters after the meeting.  

Bridgeforth said that access to child care is a “critical barrier” to the workforce.

The bill moves to the full House of Representatives. It needs four legislative days to pass; after Tuesday, there are eight legislative days left in the session.