Alabama Accountability Act Tax Credit

Alabama's scholarship tax credit

The Alabama Accountability Act, first enacted in 2013, lets Alabama taxpayers give to a state-certified scholarship granting organization (SGO) and receive a credit against their Alabama income tax. Your gift funds scholarships for Alabama students. Starting January 1, 2027, the new federal Education Freedom Tax Credit adds a second credit on top of this program.

• Up to 100%Of your gift returned as an Alabama tax credit
• $100,000Annual credit limit for individuals and joint filers
• 3 yearsCarryforward for unused credit
• Jan. 1, 2027Federal credit gifts begin

Sources: Alabama Department of Revenue, Alabama Accountability Act (opens in a new tab), ALDOR Rule 810-3-61-.02 (opens in a new tab), Act 2023-418 (opens in a new tab)

Two separate credits, two different timelines

• Alabama Accountability Act credit

  Already available under Alabama law. Give to an ALDOR-certified SGO, reserve the credit, and claim it against your Alabama income tax. Up to 100% of your gift, up to $100,000.

• Federal Education Freedom Tax Credit

  Gifts begin January 1, 2027. Up to $1,700 for individuals and $3,400 for joint filers against your federal income tax, for gifts to an SGO approved under the federal program. Donors in any state can claim it.

How the Alabama Accountability Act credit works

You give to an SGO certified by the Alabama Department of Revenue (ALDOR). In return, you claim a credit against your Alabama income tax. A credit reduces the tax you owe dollar for dollar, which is different from a deduction that only lowers the income your tax is based on.

• Credit amount

  For tax years after 2021, individuals and joint filers can claim up to 100% of their gift, limited to their Alabama tax liability and $100,000. Corporations can claim up to 100% of their gift, limited to their tax liability.

• Reserve your credit first

  Donors report the donation to an SGO and reserve the credit through ALDOR's My Alabama Taxes portal. Credits are reserved first come, first served, and the program has a statewide annual limit of $40 million in credits, which can rise in $10 million steps up to $60 million when demand is high.

• Carryforward

  If your credit is larger than your Alabama tax liability, the unused amount carries forward for up to three years and is applied after that year's credit.

• No earmarking

  Your gift goes to the SGO's scholarship fund. SGOs may not earmark donations for a specific student, so you cannot direct your gift to a particular child.

The federal credit (gifts begin January 1, 2027)

Alabama opted in to the federal Education Freedom Tax Credit when Governor Kay Ivey signed Executive Order No. 742 on January 16, 2026. The federal credit is worth up to $1,700 for individuals and up to $3,400 for married couples filing jointly, for cash gifts made on or after January 1, 2027. Unused credit carries forward for up to five years.

You cannot claim both the Alabama credit and the federal credit on the same dollars. Any Alabama credit allowed for a gift reduces the amount eligible for the federal credit. Talk to a tax professional before you give.

Scholarship granting organizations in Alabama

Your gift must go to an SGO certified by ALDOR. ALDOR publishes the list of qualified SGOs along with their annual and quarterly public reports on the Alabama Accountability Act page (opens in a new tab).

Under the federal program, an Alabama SGO must be a 501(c)(3) nonprofit that is not a private foundation, provide scholarships to 10 or more students attending different schools, spend at least 90% of its income on scholarships, and be certified by ALDOR.

Steps for the Alabama credit

• 1. Estimate your Alabama tax

  The credit is limited to your Alabama income tax liability. Check your most recent Alabama return to see how large a gift you can fully use.

• 2. Choose a certified SGO

  Pick an SGO from ALDOR's list of qualified scholarship granting organizations.

• 3. Reserve your credit

  Sign in to My Alabama Taxes, choose Manage Tax Incentives, then Report a Donation to an SGO to reserve the credit.

• 4. Give and keep your receipt

  Make your gift to the SGO and keep the written acknowledgment for your tax records.

• 5. Claim the credit

  Claim the credit on your Alabama income tax return for the year you gave. A tax professional can help you file correctly.

• 6. Plan for the federal credit

  Gifts made on or after January 1, 2027 can also earn the federal credit. Pledge your gift to be notified when it opens.