Alabama Tax Credit Scholarship: Give to an SGO and Get It Back

The Alabama SGO tax credit in brief

Alabama has run a tax credit scholarship program since the Alabama Accountability Act of 2013. You give to an approved scholarship granting organization (SGO). The SGO awards scholarships to lower-income students to attend private schools or other public schools. You get a state income tax credit equal to 100% of your gift, up to your Alabama tax liability.

That makes Alabama one of the most generous state programs in the country. A dollar given is a dollar off your state tax bill. Starting in 2027 Alabama donors can also use the new federal scholarship tax credit, because Governor Kay Ivey opted Alabama in through Executive Order 742 on January 16, 2026. The Alabama Department of Revenue (ALDOR) administers both.

Who can claim the Alabama credit

• Individuals who file an Alabama return and aren't claimed as someone else's dependent.
• Married couples filing jointly, with a single $100,000 limit per couple.
• Corporations subject to Alabama corporate income tax.
• Alabama S corporations and Subchapter K entities (partnerships and most LLCs). Their credit passes through to owners based on their share.

The pass-through rule is a real difference from the federal credit. Under Treasury's proposed rules, a gift made through a partnership or S corporation does not earn the federal credit for its owners. If you want both, give to the federal SGO personally.

Amounts and the statewide cap

Act 2023-418 raised the cap from $30 million to $40 million and added the automatic increases. Credits are assigned first come, first served, and the My Alabama Taxes system shows how much is still unreserved. In July 2026 the Alabama Opportunity Scholarship Fund, the state's largest SGO, wrote that $38 million in credits was still available to reserve that year.

Preapproval and deadlines

Alabama doesn't preapprove gifts in advance the way Georgia or Virginia do. Instead you give, then reserve:

1. Give to an approved SGO.
2. Report the donation in My Alabama Taxes (Manage Tax Incentives, then Report a Donation to an SGO). That conditionally reserves part of the cap for you.
3. The SGO must verify your donation within 30 days of notice. If it doesn't, ALDOR can release your reservation to other donors.

The credit follows the calendar year of the gift. Once the year's cap is reserved, later gifts won't earn the credit. Give and report early in the year if you can.

How the Alabama credit stacks with the federal $1,700 credit

From January 1, 2027, the federal credit returns up to $1,700 per taxpayer for cash gifts to SGOs on the IRS list. Treasury's proposed rules (October 2, 2026) handle state credits this way:

1. Add up your federal qualified contributions.
2. Subtract any state credit allowed for those same qualified contributions.
3. Your federal credit is the smaller of the result or $1,700.

Alabama's credit is 100%, so if you reserve it on the same $1,700 you designate for the federal credit, your federal credit drops to $0. The fix is to keep the two apart.

Worked example. Mark owes $5,000 in Alabama tax and $9,000 in federal tax for 2027.

• He gives $3,300 to an Alabama SGO and reserves a $3,300 Alabama credit. He does not designate this gift as a federal qualified contribution.
• He gives $1,700 to an SGO on the IRS SGO list, designates it as a qualified contribution, and does not reserve the Alabama credit on it.

Result: a $3,300 Alabama credit plus a $1,700 federal credit, $5,000 back on $5,000 given. If both gifts go to the same SGO, Treasury's ordering rule treats the state credit as coming first from the undesignated part. That works only if the Alabama credit you reserve is no more than that undesignated amount.

A married couple filing jointly can repeat the federal gift for each spouse, up to $3,400 in federal credits, while sharing the single $100,000 Alabama limit.

Under the proposed rules, an Alabama SGO counts for the federal credit only if Alabama certifies it and lists it with the IRS. ALDOR says Alabama federal SGOs must be 501(c)(3) public charities, serve 10 or more students at different schools, spend at least 90% of income on scholarships, avoid earmarking, and fund only Alabama students. Not every Accountability Act SGO will necessarily be on the federal list, so check the IRS SGO list before giving in 2027.

How to give, step by step

1. Decide your amounts. Estimate your Alabama tax. Your Alabama credit can't exceed it, though extra carries forward three years.
2. Pick an SGO from ALDOR's list. As of November 15, 2025, approved SGOs included the Alabama Opportunity Scholarship Fund, Scholarships for Kids, Rocket City Scholarship Granting Organization, Renaissance Scholarships, Children's Tuition Fund of Alabama (ACSI), Arete Scholars Fund and others.
3. Give and reserve in My Alabama Taxes right away.
4. In 2027, make a separate federal gift of up to $1,700 per spouse to an SGO on the IRS list, and designate it as a qualified contribution.
5. Keep records: the SGO receipt, your My Alabama Taxes confirmation and, for the federal gift, the SGO's acknowledgement with your donor number. Then follow our guide to claiming the federal scholarship tax credit.

Businesses should also read our guide to business tax credit scholarships.

Choosing an Alabama SGO

Ask each SGO what share of donations reaches students, how many students it funds, which schools participate and whether it plans to be on Alabama's federal SGO list for 2027. Our checklist for choosing a scholarship fund covers the rest. Families looking for help paying for school can start with Alabama scholarships, including the CHOOSE Act. You can also see every state's status on our states opted in tracker.

Edulist doesn't take donations. You give directly to the SGO. Pledge on Edulist and we'll remind you when federal giving opens on January 1, 2027. This page reflects Alabama law and Treasury's proposed rules as of October 13, 2026. It is not tax advice; ask your tax professional.