Alabama Schedule OC: 2025 individual tax credits on Form 40 or 40NR

Alabama Schedule OC is the 2025 worksheet on which a Form 40 or Form 40NR filer works out every individual income tax credit and the net tax that goes back to the return. It runs eight pages. Section A brings in the tax from Form 40 line 17 (Form 40NR line 19), Section B holds 30 credit parts lettered A through AD, Sections C and D apply this year’s credits and older carryforwards against that tax, and Sections E and F produce the amounts for Form 40 line 18 and line 25. A filer with no credits skips the schedule and copies line 17 to line 18.

Who uses Schedule OC, and which credits need MAT approval first

The schedule is headed “Attach to Form 40 or 40NR”, and each page repeats the name and Social Security number lines from the return. On Form 40 line 18 (Form 40NR line 20) there is a box to check when Schedule OC computes the net tax. Two parts are limited to Form 40: Part A, the credit for taxes paid to other states, and Part I, the credit for taxes paid to a foreign country.

Fifteen parts carry an asterisk on the 2025 form: E, F, G, H, J, N, S, T, U, V, X, Y, AA, AB and AC. The note under the title says these individual credits must be submitted through My Alabama Taxes (MAT) before the schedule is completed. In MAT, the claim starts from the Individual Income Tax account with “Submit a Credit Claim”; the Schedule OC instructions place that link in the “I Want To” menu, while the Form 40 booklet calls the area “Tax Incentives”. Someone without a MAT account can use “Submit an Individual Credit Claim” in the Individuals section of the MAT home page. Supporting documents for certain credits are uploaded in MAT, and ALDOR lists (334) 353-9770 and (334) 353-0602 for help reserving a credit.

A credit that arrives on a Schedule K-1 works differently. The booklet says the partnership or S corporation submits the claim and the individual takes no MAT action; the owner enters the pro rata share and the entity’s FEIN on the part’s K-1 line and attaches a schedule when the credit comes from more than one entity.

Situations that match a part on the 2025 form: an Alabama resident whose wages were also taxed by another state with an income tax (Part A), a licensed physician practicing in a rural community (Part D), parents who adopted a child (Part M), a homeowner who built a certified storm shelter at the primary residence (Part U), a volunteer firefighter or rescue squad member (Parts V and X), and a business owner whose S corporation or partnership passes through a credit.

How to fill out Section B, Parts A through AD

Enter Section A first, because Parts A, O, R and W calculate from it. Every part ends on a “credit allowable” line that is copied to Section C, Column 3. Parts O, R and W also send their current credit available to Column 2.

The 2025 instructions add conditions the boxes do not show. For Part A, residents whose wages came from a state without an income tax are not eligible, and a part-year resident qualifies only when the Alabama and other-state returns cover the same periods. Part I applies to a resident owner’s share of foreign tax paid by a partnership, S corporation, estate or trust; it does not cover wages earned abroad. The Part D physician must live and practice in an Alabama community of fewer than 25,000 residents, and the credit runs for no more than five consecutive tax years.

Part M is $2,000 per child for a private adoption of an Alabama-resident child or a qualifying child in the custody of the Alabama Department of Human Resources, and $1,000 per child for an out-of-state adoption or a child not otherwise resident in Alabama. Part U is the lesser of $3,000 or 50% of the shelter cost at the primary residence, after pre-certification by the Alabama Emergency Management Agency. Part V needs at least 30 hours of certified training in the year, shown on a certificate signed by the supervisor. Part X reimburses unreimbursed annual mileage at the state-employee rate, and Part Y starts with calendar year 2025.

Sections C and D: applying credits in order and using carryforwards

Section C, on pages 6 and 7, can only be submitted and printed in horizontal (sideways) orientation. It lists the parts in letter order. On the first row with a credit, Column 4 is the Section A tax. Column 5 is the smaller of Column 3 or Column 4, and Column 6 is Column 4 minus Column 5. The next row takes the previous Column 6 as its tax to offset, and you stop once no tax remains. Column 7 holds the carryforward: for Parts O, R and W it is Column 2 minus Column 5, for every other part Column 3 minus Column 5. Section C line 1 totals Column 5.

Section D handles carryforwards from earlier years in up to 20 rows. List the oldest credit year first and do not list tax years whose credit has already been used. When two carryforwards share a year, the instructions set this order: irrigation or reservoir system, scholarship granting organization, 2013 historic rehabilitation, career-technical dual enrollment, Alabama Jobs Act investment, port, Growing Alabama, Innovate Alabama, then the Alabama Small Business and Agribusiness Jobs Act credit. Column E starts with the balance from Section C, Column 6, or the Section A tax when no current credit was used. Column F is the smaller of Column D or Column E, Column G is Column C minus Column F, and line 21 totals Column F.

Column D equals Column C except for the dual enrollment, Growing Alabama and Innovate Alabama credits, which are capped at Column 4 of lines O9, R7 and W7. The printed note on page 8 names “Part X, Line X7”, but Part X has no line X7; the instructions name Part W, line W7. The schedule’s carryforward periods are 3 years for Parts L and O, 10 years for Part N, and 5 years for Parts E (from calendar year 2023), J, P, Q, R, W and Z. Parts S, U, X, Y and AB cannot be carried forward.

Sections E and F: the amounts for Form 40 line 18 and line 25

Section E (marker 2 below) produces the net tax. E1 repeats Section A, E2 is Section C line 1, E3 is Section D line 21 (marker 1), and E4 adds E2 and E3. E5, E1 minus E4, goes on Form 40 page 1, line 18 or Form 40NR page 1, line 20. Section F (marker 3) collects the refundable part of five credits: each of F1 to F5 is Column 3 minus Column 5 of the Section C row for Part K, M, S, AB or AC. F6 totals them and goes on page 1, line 25 of Form 40 or Form 40NR.

A worked example with the form’s own arithmetic: Section A tax is $1,200 and the family completed a private adoption of an Alabama-resident child, so Schedule AAC gives $2,000 for Part M. On the Part M row of Section C, Column 3 is $2,000, Column 4 is $1,200, Column 5 is $1,200 and Column 6 is $0. E5 is $0 for line 18, and F2 is $2,000 minus $1,200, or $800, which reaches Form 40 line 25 through F6. Estimated tax payments made with Alabama Form 40ES vouchers are a separate entry, Form 40 line 23.

Two printed cross-references disagree. The instructions tell you to compute F3 from Section C, Part T, Column 3, but the form’s F3 line and the Section F heading both refer to the 2017 historic rehabilitation credit in Part S, so this guide follows the form. The Part T instructions call the railroad credit refundable, yet Section F has no line for Part T; a holder of that certificate should ask ALDOR how to report any amount above the tax before filing.