Alabama’s HB 358 tax credit is designed to help businesses support their employees with childcare costs, which means helping you keep great employees and attract new talent. Here’s the basics: if you help your workers pay for childcare for kids age 5 and under, you can get a tax credit to offset those costs.
Small businesses with fewer than 25 employees can get back 100% of what they spend (up to $600,000), while larger businesses can claim 75%. The catch? You need to reserve your spot early each year because there’s a statewide cap, and it fills up fast. You’ll also need to work with licensed, STAR-rated childcare providers that accept state subsidies, and you’ll need to keep good records.
The program runs through 2027, and while there’s some paperwork involved, many businesses find it’s worth it to reduce turnover and help employees who are struggling to find affordable childcare. This guide breaks down exactly what you need to know to take advantage of this credit.
The Alabama Employer Childcare Tax Credit incentivizes employers who help employees access childcare. Participation requires advance reservation and documentation and credits are allocated first-come, first-served.
The credit reservation portal opens January 5 at 12:00 a.m. (midnight).
This one-page guide outlines who qualifies, what expenses are eligible and what actions employers must take to secure the credit.
Additional Resources:
More Information on the Employer Childcare Tax Credit
More information on the procedures for reserving an Employer Tax Credit
Procedure for claiming an Employer Tax Credit
HB 358 — Alabama Employer Childcare Tax Credit
One-Page Business Implementation Guide (Engrossed Law + ALDOR Rule)
Effective: Tax Years 2025–2027
Purpose: Incentivize employers who help employees access childcare, improving workforce participation.
1. What the Employer Tax Credit Provides
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Small businesses (<25 employees): 100% of eligible expenses, up to $600,000/year.
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All other employers: 75% of eligible expenses, up to $600,000/year.
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Credits will only be awarded to businesses who receive an employer credit reservation and verify eligible expenses incurred.
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Credit amount cannot exceed the amount reserved through ALDOR’s portal.
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Credit is nonrefundable unless the employer is a childcare provider.
Statewide caps: $15M (2025), $17.5M (2026), $20M (2027).
2. Who & What Qualifies
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Employer must be a for-profit Alabama business.
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Employees included must be residents of Alabama and have wages ≤ $80,000 per year (excluding OT/bonuses).
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Eligible children must be age 5 or under.
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Eligible expenses must be incurred by an employer at a qualifying childcare organization.
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Covered: DHR Licensed, STAR-Rated Alabama Providers, in home DHR licensed providers.
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NOT Covered: License-Exempt Facilities (i.e. centers affiliated with a religious organization), “special programs” operating less than four hours per day (not required to be licensed or received an exemption),
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Eligible expenses are expenses incurred by an employer for the provision of childcare and include childcare tuition, employee reimbursements, reserved slots, and certain facility-related costs; provided that the employers can demonstrate that the expenses incurred were exclusively for qualifying employees’ benefit in supporting their childcare needs.
3. Required Employer Actions
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Have an active My Alabama Taxes account where the credit will actually be claimed on a tax return.
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Reserve credit through My Alabama Taxes beginning January annually—first-come, first-served.
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25% of credits held for small businesses or rural employers until July 1. Reservations that select the small business or rural designations and do not meet these criteria will be disallowed.
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Employer must prioritize Earned Income Tax Credit (EITC)-eligible employees, if any.
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Full documentation to verify eligible expenses must be submitted after the close of the tax year, but not later than March 1.
4. Required Documentation Includes but is not limited to:
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Direct payments: invoices, child name, dates of service, employer–provider agreement.
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Employee reimbursements: paid invoices, reimbursement proof, stipend documentation if applicable.
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Employer-owned/operated facility: detailed ledger of expenses plus invoices.
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Equipment purchases: receipts and descriptions of items purchased.
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Employee wage data including hourly rate, overtime/bonus details, and hours worked.
Note! The items listed above are intended to be a guide and should not be considered a complete list. Required documentation will vary on a case-by-case basis basis.
5. Strategic Employer Uses
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Important! The information provided above is intended to provide examples of potential uses of this credit. Please contact your tax professional and the Alabama Department of Revenue to confirm eligibility.
6. Summary — What Businesses MUST Do
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Reserve early – First Come First Serve and the credit was fully reserved early in the first year. The same is expected in subsequent years.
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Prioritize EITC-eligible employees, if any.
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Only claim children age 5 and under.
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Maintain invoices, agreements, payroll data, and receipts.
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Submit complete documentation by March 1 annually.
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Remain within the $600,000 employer cap.
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Provide supporting documentation with the credit claim to ALDOR.
DISCLAIMER
This guide is for informational purposes only and does not constitute tax, legal, or professional advice. Tax laws are subject to change and individual circumstances vary. Before claiming any tax credits, please consult with a qualified tax professional or certified public accountant and verify current requirements with the Alabama Department of Revenue.
