In March of 2013, Governor Bentley signed into law Act 2013-64, which is the Alabama Accountability Act (AAA) of 2013.  The purpose of the Act is to fund scholarships for low income students who are in failing school districts.  The scholarships will allow them to transfer to non-failing public schools or nonpublic schools of the parent’s choice.

The state has earmarked $30 Million in credits annually for this purpose. The contributions must be made to an approved Scholarship Granting Organizations (SGO), who will then be responsible for distributing the funds. In exchange for making donations to the SGO, the taxpayer will receive a dollar-for-dollar Alabama Income tax credit, which can be used to offset up to 50% of the taxpayer’s Alabama income tax liability.  Any unused credit can be carried over to the subsequent year.  The credit must be reserved in advance with the Alabama Department of Revenue.

Act 2015-434 makes the following changes to the AAA rules beginning January 1, 2015:

The credit limit for individuals has been increased from $7,500 annually to $50,000 annually.  In addition, the new law allows S Corporations and Partnerships to participate in this program.  AAA Credits generated by S Corporations and Partnerships flow through to the entity’s owners.  (Previously, the AAA Credit was only available to individuals and C Corporations.)  Finally, the Act restricts a donor’s ability to direct donations to a particular school or student.  Act 2015-434 is retroactive to January 1st, 2015.

If you have any questions or need assistance regarding this credit, please contact your BMSS CPA.

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