Alabama has taken a significant step forward in education reform with the introduction of the Creating Hope and Opportunity for Our Students’ Education (CHOOSE) Tax Credit program. Enacted through legislation (L. 2024, H129 (Act 21)), effective March 7, 2024, this program aims to alleviate the financial burden of educational expenses for parents while enhancing access to quality education for students across the state.
The CHOOSE Act establishes a refundable income tax credit system, administered by the Department of Revenue, targeted at parents of eligible students. These tax credits are designed to offset the costs of qualifying educational expenses incurred by families. Under the program, the Department of Revenue will create education savings accounts (ESAs) where credit funds will be deposited for participating parents to utilize towards educational services.
Eligibility for the CHOOSE Act tax credit is determined based on family income levels. Initially, for the years beginning in 2025 and 2026, the credit will be accessible to parents with adjusted gross incomes not exceeding 300% of the federal poverty level for the preceding tax year. However, from January 1, 2027, onward, the credit will be available to all parents of eligible students.
Special consideration is given to special-needs students, with the first 500 tax credits reserved for their parents. The amount of the credit varies depending on whether the student is enrolled in a participating school or not, capped at either $7,000 or $2,000 annually, respectively.
Importantly, the received credit amounts will not be considered taxable income for parents or students, and they are exempt from offset or debt collection against any liability.
Key definitions under the program include the term “eligible student,” encompassing children aged five to 19 years residing in Alabama who have not graduated high school or aged five to 21 years who qualify for services under specific education acts. However, certain exclusions apply, such as students receiving funds under the Alabama Accountability Act or those not lawfully present in the United States.
“Qualifying educational expenses” cover a broad spectrum, including tuition, textbooks, tutoring, online learning programs, educational software, and more.
The administration of the program involves the Department of Revenue creating application processes for both parents and participating schools or education service providers. The Department also oversees the distribution of tax credits, the establishment of ESAs, and the dissemination of relevant information to stakeholders.
To ensure the sustainability of the program, the legislation establishes the CHOOSE Act Fund, allocating a minimum of $100 million annually beginning in the fiscal year ending September 30, 2026, to support the tax credits.
Additionally, the Department will provide transparent program information on its website, including details on credits claimed and approved participating entities.
The CHOOSE Act represents a significant investment in the educational future of Alabama’s students, aiming to empower families with greater choice and opportunity in their children’s education.
