Understanding Alabama’s Accountability Act
The Alabama Accountability Act (AAA) provides an innovative way for taxpayers to support K–12 education across the state — by redirecting a portion of their Alabama state income tax liability to fund private school scholarships for qualifying students. Through this program, individuals and businesses can contribute to approved Scholarship Granting Organizations (SGOs), such as Scholarships for Kids (SFK), helping families access educational opportunities that might otherwise be out of reach.
How It Works
Instead of paying your full Alabama income tax directly to Montgomery, eligible taxpayers may choose to donate that amount — dollar-for-dollar — to a qualified SGO. The donation generates a state income tax credit equal to the amount contributed, subject to annual limits. In essence, the program allows you to redirect a required state tax payment toward an educational cause, helping Alabama students while fulfilling your state tax obligation.
Key Program Highlights
- Who Can Participate: Individuals and C corporations with Alabama state income tax liability.
- Credit Limits:
- Individuals – Up to 100% of Alabama tax liability, capped at $100,000 per year.
- C corporations – Up to 100% of tax liability, no dollar cap.
- Statewide Cap: Total annual credits are limited to $40 million statewide, with potential increases up to $60 million.
- Scholarship Amount: Typically set at $10,000 per student per year.
- Carryforward: Unused credits may be carried forward for up to three years.
- Deduction Rules: Because the credit offsets Alabama tax directly, you cannot also claim an Alabama charitable deduction for the same amount. Federal deductibility may vary depending on your specific circumstances.
How to Reserve and Claim the Credit
Participation involves several key steps through the My Alabama Taxes (MAT) online system:
- Create or Log In to Your MAT Account
Visit My Alabama Taxes. Individuals will need their Social Security number and prior-year adjusted gross income to register. - Reserve Your Tax Credit
Once logged in, navigate to “SGO Donation” in the left-hand menu and enter the amount you plan to contribute (within your annual limit). - Make Your Donation
Complete your contribution directly with an approved SGO, such as Scholarships for Kids, following their donation procedures. The deadline to make a donation and reserve your credit is December 31 of the applicable tax year. - Report and Document
After donating, return to MAT to “Report a Donation to an SGO.” Be sure to provide your confirmation and donation receipt to your tax preparer, who will use Schedule AATC to claim the credit when filing your Alabama return.
Important Considerations
- The program does not increase your overall state tax liability but redirects part of it for educational use.
- Credits are subject to statewide availability — once the $40 million cap is reached, additional reservations cannot be accepted for that year.
- As with any tax-related decision, it is important to consult your tax advisor to determine how the AAA credit fits into your overall tax strategy.
For more information, visit the Alabama Department of Revenue’s Accountability Act page or learn more about Scholarships for Kids at scholarshipsforkids.org.
This article is for informational purposes only and should not be construed as legal or tax advice. Individuals should consult their professional advisor regarding their specific situation.