If you have put young children into childcare before kindergarten or have seen employees struggle to find classroom space so they can work, you may see a need for solutions. Alabama legislators have …
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If you have put young children into childcare before kindergarten or have seen employees struggle to find classroom space so they can work, you may see a need for solutions. Alabama legislators have approved two childcare tax credits for licensed childcare providers and employers who have young children. Their aim is to help businesses support employees find and access childcare so they can continue to work and to help facilities support teachers' wages and maintain their quality ratings.
With childcare facilities beyond capacity and a shortage of teachers leading to limited available spaces, VOICES for Alabama Children Executive Director Rhonda Mann said the tax credit "is not a silver bullet" but is "a great place to start" with solving the modern issues surrounding childcare.
The process to reserve your spot for an application opened March 1. The deadline to apply is within 2025.
The tax credits have a cumulative total of $82.5 million scheduled for distribution throughout the next three tax years, with varying maximum amounts for childcare facilities and employers whose employees have children who are too young for elementary school.
The application reservation process, as well as specifics on what an individual needs to qualify for the credit, can be found on the Alabama Department of Revenue (ADR) website at www.revenue.alabama.gov.
It is important to note that a reservation does not guarantee tax credits will be awarded.
These tax credits, if applied for within 2025 before the "first-come, first-served" basis is up, will be applied to the 2025 tax return, which will come out next year. To receive a credit, eligible individuals must reserve the credit on the ADR site and wait to file for next year's taxes.
The employer tax credit is limited to $15 million this year, and the tax credit for facilities is capped at $5 million. Once those max amounts are reached this year, no more tax reservations will be available.
While the credit is seen as one step forward, Mann said, tax credits in general "only address some of the issues facing the childcare industry in our state."
"We have a shortage of workers in some areas. Childcare teachers need to be paid better and have better benefits rather than treating them like glorified babysitters," she said.
Problems in childcare have many layers, especially in the ever-growing Baldwin County.
"Issues we've addressed in the past were focused more on licensure and the health and safety of children in a childcare setting," Mann said, comparing strategies for previous issues with the current situation. "This is a totally different issue, and it will take all of us — employers, providers and lawmakers — coming to the table to find a long-term solution."
While the issues in the childcare crisis were not caused by the COVID-19 pandemic, many were "highlighted" or "exacerbated." During 2020, providers were working on "razor thin margins," and many providers closed.
"Childcare providers that stayed open during COVID-19 could only serve about half the children they had on their roll due to COVID-19 restrictions," Mann said. "Obviously, that was going to put an even greater strain on the childcare provider and the industry as a whole."
Facility closures occurred across the state, and those that remained open "had long waiting lists for their slots."
Those wait lists remain today.
In addition to facilities closing, there has also been a decrease in teachers.
"There were a great many reasons for this, including an average hourly rate of less than $11 an hour," Mann said.
Mann mentioned how childcare providers cannot afford to pay their employees fair wages without charging parents more. To be licensed, childcare facilities must maintain a specific teacher-child ratio that limits the number of kids who can be accepted.
Another difficulty in finding childcare is faced specifically by parents who work non-traditional hours or have special needs children as it can be "difficult to find childcare that meets their specific needs."
She also mentioned how, without proper childcare, parents cannot effectively work. If a teacher has to suddenly not come in to work due to illness or emergency, there might not be another teacher to fill in. Parents will get a call in the morning saying there is not be a teacher for their child's room, and they then must find someone else to watch their child.
"Working parents might not have backup arrangements and have to take time off from work or work remotely if that was available," Mann said.
In the first six months of 2023, working parents missed on average 46 hours of work due to childcare problems, she said.
Some grandparents Mann spoke with who were working full-time or part-time had to cut back on hours to help take care of grandchildren, especially with a new baby due to a lack in available "care for that age group."
"Childcare is the workforce behind the workforce," Mann said. "It is an integral part of every community and plays a critical role in helping a community thrive by taking care of the children for the mandatory workers."
While any solution is not likely to "turn things around in a year or two," Gulf Coast Media plans to look further into how the issues surrounding childcare affect Baldwin County facilities and what are actions being implemented to work out these problems.
Mann said the employer tax credit will help "employees with the affordability and accessibility of childcare."
According to the ADR site, eligible employers are those in "for-profit businesses operating in Alabama" who can prove that they "prioritize the payment of eligible expenses" to employees who use childcare services during working hours and are a resident of Alabama, employed full-time or part-time (including independent contractors) and make less than $80,000 excluding overtime and bonuses. Qualifying children include those who are 5 years old or younger.
Small businesses, which are a business with fewer than 25 employees, can qualify for the employer tax credit to cover up to 100% of eligible expenses with a maximum of $600,000 for each employer annually to be distributed amongst eligible employees. Businesses with 25 or more employees can receive credit to cover up to 75% of eligible expenses, also with a maximum of $600,000 annually.
The employer tax credit has an annual total cap of $15 million for 2025, $17.5 million for 2026 and $20 million for 2027. These funds will be allocated on a first come, first served basis.
It is ultimately up to the employer to use the funds toward their employee's childcare, but there are several opportunities where this could be implemented.
"Some (employers) are using the tax credit to provide an employee benefit where they pay an amount toward the cost of childcare," Mann said. "Others might look at having an on-site childcare. Some might look at paying to reserve childcare slots for their employees."
Mann said the other half of the Childcare Tax Credit, the facility credit, is only for for-profit childcare providers licensed through the Alabama Department of Human Resources (DHR) and that have received a rating under the Alabama Quality STARS program, which measures childcare facility quality and improvement on a scale of one to five stars.
The amount of funds available depends on the quality STARS rating and the number of eligible children, which Mann said is defined as "children under 6 receiving subsidized care" or low-income families.
The ADR site said the facility credit is calculated by multiplying the "average monthly number" of eligible children by the STAR rating. The facility tax credit has a maximum of $25,000 annually available for each facility.
Provider applicants have a total cap of $5 million for 2025, 2026 and 2027 for all providers that will also be allocated on a first come, first served basis.
Twenty-five percent of the annual cap is reserved for childcare facilities operating in rural areas, while 75% of the cap is assigned to non-rural childcare providers.
A map of what is qualified as a rural area can be found on the ADR site in a link on the Childcare Facility Tax Credit page at www.revenue.alabama.gov/tax-incentives/childcare-facility-tax-credit/.
As of the 2024 qualifying counties list, Baldwin County is not considered a rural county.
The ADR site states a "queue will be established" after the 75% of funds are used up, and if rural funds are not completely reserved by July 1 remaining funds will be allocated on the same first come, first served basis firstly going to those in the queue.
The amount of funds a facility can receive vary based upon the STAR rating.
For a one-star rating, a facility can receive $1,000 per eligible child. The totals go up by $250 per star rating. So, a two-star rating is $1,250 per child, a three-star rating is $1,500 per child, a four-star rating is $1,750 per child, and a five-star rating is $2,000 per child.
Nonprofit childcare providers can apply for grants through the DHR to cover specific expenses for their facility.
