But without a change in the law, the tax credits would be deducted from the deduction of federal taxes paid that people use to reduce their Alabama state income taxes.
The bill passed Thursday means that additional child tax credits will not count toward the federal deduction. The bill means that increases to the earned income tax credit and dependent tax credit resulting from ARPA will not count towards the federal deduction.
Senator Dan Roberts, R-Mountain Brook, who sponsored the bill in the Senate, said a family with two children would typically save about $200 in income tax thanks to the legislation.
“Think of how many people had to change their options about where they were going to drop off their kids at daycare,” Roberts said. “Many have closed. You could have a COVID outbreak. The teachers weren’t there. They had to have another option to be able to show up for work. So parents have been extremely disadvantaged, and that’s what those incentive dollars are for.
Rep. Jim Carns, R-Vestavia Hills, who sponsored the bill in the House, said Congress wants the benefit to be exempt from federal and state income taxes.
“It actually fulfills the intent of the ARPA funds that were sent to working families who had children at home,” Carns said.