The Federal Scholarship Tax Credit in Alabama
Last updated: October 2026. Federal regulations are proposed, not final.
How Alabama opted in
On January 16, 2026, Governor Kay Ivey signed Executive Order No. 742, formally electing Alabama into the Federal Scholarship Tax Credit program. The order named the Alabama Department of Revenue (ALDOR) as the administering and certifying agency.
The opt-in was by executive action, not legislation. Alabama appears on the IRS's official list of 30 participating states for 2027.
Ivey has said she wants Alabama to be "the most school choice friendly state in the nation" and described the federal program as an embrace of "educational freedom."
Alabama's existing programs
Alabama has two state school choice programs that interact with the federal credit:
Alabama Accountability Act (since 2013)
Donors who give to Scholarship Granting Organizations receive a 100% state tax credit, up to 100% of their state tax liability. Individuals are capped at $100,000 per year. The statewide cap is $40 million per year. Scholarships go up to $10,000 per student per year for tuition and fees, with priority for students zoned for D- or F-rated schools. Seven SGOs currently operate under the program.
CHOOSE Act (2024)
Education savings accounts worth up to $7,000 per student at participating schools, or $2,000 for homeschool expenses (capped at $4,000 per family). For 2026-27, new families must have income at or below 300% of the federal poverty level. The program becomes universal in 2027-28.
Demand is strong: 48,927 students applied for 2026-27, with more than 34,000 approved and over $174 million in ESAs awarded. A student cannot use both AAA scholarships and CHOOSE Act funds. ALDOR enforces this.
The donor trap
Alabama's Accountability Act credit is dollar-for-dollar. If you claim the state credit on a donation, it reduces the federal credit on those same dollars to zero. To get both credits, make separate gifts: one designated for the state program, one for the federal program. Do not try to claim both on a single donation.
Can students stack federal and state aid?
Whether a student can receive both a CHOOSE Act ESA and a federal SGO scholarship has not been resolved. Federal rules require SGOs to prevent duplicate payments for the same expense, but the statute does not bar students from receiving multiple forms of aid. ALDOR has not issued guidance on coordination.
Income limits for Alabama families
Students qualify if household income is at or below 300% of the area median income. Based on HUD data:
| Area | Max household income (300% of area median) |
|---|---|
| Jefferson County / Birmingham | $287,700/year |
| Shelby County | $287,700/year |
| Madison County / Huntsville | $346,500/year |
| Mobile County | $244,500/year |
| Montgomery County | $250,800/year |
| Tuscaloosa County | $273,300/year |
Estimates based on HUD income data. The IRS has not published official 2027 figures, and the income calculation method comes from proposed federal regulations, not final rules. Treasury estimates about 96% of children in participating states qualify.
For Alabama families: how to use it
The program goes live January 1, 2027. Families apply directly to a scholarship organization, not to the state. Scholarships cover tuition, tutoring, books, supplies, and special-needs services at public, private, or religious schools.
No certified SGO list exists yet. Alabama's list is due to the IRS by February 15, 2027. ALDOR has published certification criteria but has not opened applications.
For Alabama donors: how to give
Starting January 1, 2027, donate cash to a scholarship organization on Alabama's IRS list and claim a dollar-for-dollar federal tax credit of up to $1,700 per person ($3,400 for married couples filing jointly, under proposed rules). The credit is nonrefundable. Unused amounts carry forward up to five years.
If you also donate under the Accountability Act for the state credit, keep the gifts separate. The federal credit is reduced by any state credit claimed on the same contribution.
You cannot direct your donation to your own child or any specific student. You also cannot claim a charitable deduction on the same dollars.
Scholarship organizations in Alabama
No federal SGOs have been certified yet. The likeliest candidates are the seven existing Accountability Act SGOs, including Scholarships for Kids (the largest), C2 Opportunity, and the Alabama Opportunity Scholarship Fund.
Accord Kids, backed by the Alabama Christian Education Association, has publicly announced it will seek federal SGO recognition in Alabama.
Under federal rules, Alabama must list every organization that meets the federal requirements. The state cannot add extra conditions.
Who runs this in Alabama
The Alabama Department of Revenue is the certifying agency under Executive Order 742. It already administers both the Accountability Act and the CHOOSE Act. ALDOR has published SGO certification criteria for the federal program and is expected to open applications before the February 2027 list deadline.
Key dates
| Date | Milestone |
|---|---|
| January 16, 2026 | Alabama opts in (Executive Order 742) |
| January 17, 2026 | ALDOR publishes SGO certification criteria |
| October 1, 2026 | Treasury releases implementing regulations |
| January 1, 2027 | Program goes live; donations can begin |
| February 15, 2027 | Alabama's SGO list due to the IRS |
Sources
- IRS: Federal Scholarship Tax Credit, participating states list (accessed October 2026)
- AL Governor: Ivey signs executive order on federal education freedom tax credit (accessed October 2026)
- AL Dept. of Revenue: Education Freedom Tax Credit Program (accessed October 2026)
- Ballotpedia: state participation in the federal K-12 education tax credit program (accessed October 2026)