Tax Credit Scholarships Under the Alabama Accountability Act

[UPDATE: I jumped the gun on the Governor signing SB71. It did happen on June 10, though. Appreciation to the astute reader who questioned the accuracy of that statement. We apologize for the error. Here is a post updating the basics of the AAA after SB71 was enacted.]

Changes to the Alabama Accountability Act (AAA) have been signed by Gov. Robert Bentley.

While the original AAA, passed in 2013, had multiple areas of impact, including flexibility provisions for school districts and ways for children zoned to “failing” public schools to move to non-failing and private schools, the changes that were passed by the legislature were mostly concerned with the tax credit portion, and specifically the tax credit scholarship portion of the AAA.

Tax Credits Explained

Most of the recent discussion has been centered around the tax credit provisions of the AAA.

An income tax credit is a dollar-for-dollar reduction in the income tax liability for the taxpayer.

Folks who donate money to a scholarship granting organizations are given that dollar-for-dollar reduction up to 50% of your yearly income tax liability. Individuals are capped at $50,000 while corporations have no cap.

That is tax money that would have gone into the Education Trust Fund, but doesn’t do so because the taxpayer is instead being given the tax credit for that donation.

The total amount of tax credits available was raised to $30 million (from $25 million).

Here’s a helpful video from an SGO in Georgia that explains how money is “directed” by the taxpayer to the SGO and ultimately to private school education: the section of video from 50 seconds to 1 minute, 26 seconds is similar to Alabama. Please note that the dollar amounts in the video are Georgia’s version, not Alabama’s.

The AAA provides two different ways for individuals and corporations to earn income tax credits:

1. Parents of children zoned to “failing” public schools can receive a tax credit for the cost of their child to either transfer to a non-failing public school or to attend a qualifying nonpublic (a.k.a. private) school, and
2. Those who donate to scholarship granting organizations (SGOs) can receive a tax credit for that donation.

Tax Credit Scholarships

The SGO distributes contributions it receives by granting scholarships, known as tax credit scholarships, for eligible students to attend qualifying private schools.

The details are interesting and the parts keep moving, but it’s important for parents and families and potential donors to first understand the basics of how the tax credit scholarship program works.

So here you go, in simple form:

Again, this graphic shares the most basic parts of the tax credit scholarship program. For more information, see the Alabama Department of Revenue’s dedicated page for the AAA.

Here’s where all of the articles about the AAA published on the Alabama School Connection are housed.

This “basics” article from last December needs to be updated with the changes, but is helpful if you want to understand the various pieces of the AAA.