Beginning this morning, Friday, June 26, taxpayers may reserve Alabama income tax credits for donations made to qualified scholarship granting organizations (“SGOs”) that can be used to offset their 2014 tax liability. Because of Act 2015-434, approximately $11.4 million of tax credits that were unclaimed during 2014 are temporarily available to taxpayer-donors through the Alabama Department of Revenue’s “My Alabama Taxes” (“MAT”) website. Taxpayers can take advantage of this opportunity any time prior to the extended due date of their 2014 tax return, but it appears that these credits will be claimed long before that date—possibly in the next week or two. 

According to the Alabama Department of Revenue (“ADOR”), even if taxpayers have already filed their 2014 Alabama income tax return and paid the tax, they can still make a donation to a designated SGO, reserve the retroactive credit on MAT, and amend their return to claim the credit. They will receive a refund from the ADOR, probably in the form of a check. 

According to the ADOR, however, the donor limitations in effect prior to the recent amendments to the Alabama Accountability Act will apply for purposes of reserving the 2014 credits. Thus, tax-creditable donations by individual donors will be limited to the lesser of (1) 50% of their Alabama income tax liability for 2014 or (2) $7,500. The increase to the individual cap under the amendments to the Accountability Act to $50,000 per year will apply to credits being reserved against the 2015 (and subsequent) tax credit allocation, which was increased to $30 million. “C” corporations may continue to make tax-creditable donations equal to 50% of their Alabama income tax liability. 

If donors previously made the maximum contribution to SGOs in 2014, those donors can’t reserve additional credits against the 2014 tax credit allotment. In addition, the recent expansion of the Act to allow pass-through entities, such as S corporations and LLCs, to make tax-creditable donations and pass those through to their owners, applies only to 2015 (and subsequent) tax credit allocations. 

This is an incredible opportunity for individual and “C” corporation taxpayers not only to receive tax credits for donations made today for use in offsetting their 2014 Alabama income tax liability, but to fund scholarships for low-income children for the upcoming 2015–2016 school year. Those funds are needed quickly. At last count, over $1.2 million of these credits have already been reserved today, so we urge you to promptly consider this opportunity.