Alabama Creates New Tax-Credit Education Savings Account for K-12 students

From Birmingham to Mobile, Alabama, families will soon have new choices regarding their children’s K-12 education! A landmark bill, HB 129, passed by lawmakers, will create a flexible school scholarship program called an education savings account (ESA) program. Launching in 2025, this program will allow participating families to receive ESAs of up to $7,000 to fund private school tuition, homeschool expenses, or other personalized learning costs. 

What is the CHOOSE Act?

Alabama made history by passing the Creating Hope & Opportunity for Our Children (CHOOSE) Act. This bill creates the state’s first ESA program and makes Alabama the first state to pass an ESA bill in 2024. 

What exactly is an ESA? Like a scholarship, an ESA provides funding for a student’s K-12 education. What makes an ESA unique is flexibility: ESA funds can be applied not just to private school tuition, but also to costs such as tutoring fees, college placement exams, afterschool education programs, and more. Alabama’s new ESA, and other ESAs around the country, are designed to give parents more options for personalizing their child’s education. 

In brief, here’s what Alabama’s ESA program will look like: Participating parents will be able to receive up to $7,000 per year in an online account for their child’s education. Families will be able to use their ESA funds for eligible learning expenses of their choice, from paying tuition at that private Montessori school they’ve always hoped their child could attend to purchasing a laptop for homeschool work. While the program will initially be open to low-income students and students with special needs, it will become “universal” in 2027. This means that all Alabama students will be eligible to apply at that time. 

With the funding allocated by the Alabama CHOOSE Act (a minimum of $100 million), up to 14,000 or more Alabama students could participate in the ESA program, according to some estimates. 

As the new program is established, we anticipate receiving more information soon. Stay tuned for further updates!

When will Alabama’s new ESA program launch? 

Alabama’s ESA program will kick off for the 2025-2026 school year for students with special needs and low and middle-income families. It will become open to families of all income levels starting in 2027! 

Who is eligible to apply for Alabama’s ESA?

Every year, the first 500 spots in the program are reserved for students with special needs, such as students with a 504 or Individualized Education Plan. It is important to note that these spots are not subject to income limitations. 

The remaining spots in the first and second years of the program will be available to families with incomes of up to 300 percent of the federal poverty level (about $77,460 for a family of three). From 2027 onwards, families of all income levels will be able to apply, with priority given to low-income families.

Homeschoolers who meet the income eligibility are also welcome to apply for ESAs but are subject to a different funding cap than those enrolling in a participating school. Parents of a homeschool child can receive ESA funds of up to $2,000 for their student. Parents with multiple homeschooling children can receive ESA funds of up to $4,000 total. 

Whether they choose a private school or homeschool, students who participate in the ESA program are required to take a standardized assessment, a nationally norm-referenced achievement test, or a nationally recognized aptitude assessment of their school’s choice. (In some cases, students with disabilities may be exempt from this testing requirement.)

What are eligible educational expenses?

So, what expenses can families use Alabama’s new ESA program for? Here are the approved expenses:

• Tuition and fees at a participating school
• Textbooks
• Fees for after-school or summer education programs at a participating school
• Private tutoring
• Curricula
• Tuition for a nonpublic online learning program
• Educational software
• Costs for college admission tests and AP exams
• Education services for students with disabilities from a licensed or accredited practitioner
• Contracted services provided by a public school district

As you can see, families can use their ESA to choose from an array of private, online, and homeschool options, as well as public school offerings that charge tuition!  

How will families apply for and use the ESA? 

The Alabama Department of Revenue will manage and administer the program and establish guidelines for families who wish to apply. These guidelines will include deadlines and the required paperwork that families must submit. 

Under the law, the department will be required to set up a system that allows parents to make periodic payments from their online accounts directly to their child’s school or education service provider. The aim will be to make it easy for parents to pay for their child’s education and ensure their payments are timely and efficient. 

Additionally, the department will create and update a list on its website of what schools and education service providers are approved to participate in the ESA program. This will enable families to easily explore where they can and can’t use their ESA funds. 

It’s important to note that schools that participate in the program must operate within the state of Alabama and comply with privacy, occupancy, health, and safety codes. 

Other school choice options in Alabama

In addition to this new program, Alabama has two other programs under the Alabama Accountability Act already in place to support private school choice. Alabama’s Education Scholarship Program provides tax-credit scholarships of up to $10,000 for students whose household income is below 250% of the federal poverty level (approximately $75,000 for a family of four) and students with Individualized Education Plans who wish to attend a public or private school of their choice. Nearly 3,000 students currently participate in this program. 

The Alabama Accountability Act also allows families in priority schools to claim an income tax credit for the cost of moving their child to a different public or qualifying private school. 

It’s important to note that students cannot participate in these programs and the new tax-credit ESA program simultaneously. 

Learn more

With the CHOOSE Act, Alabama joins a growing list of states giving parents greater control over their children’s education and investing in students’ futures.

Alabama is the fourteenth state to pass an education savings account, and the eleventh state to establish an educational choice program accessible to all students. Some states that passed ESAs last year, such as Arkansas, have established a “phase-in” period similar to that of Alabama’s program. Other states that expanded choice programs in 2023 include Iowa, Florida, Utah, Indiana, Kansas, Nebraska, Montana, and South Carolina.

As Alabama’s new tax-credit ESA program is set up, we expect to see more information soon. Stay tuned for further updates!

To learn more, families can visit the Alabama State Department of Education.