diff --git a/app/controllers/allocations_controller.rb b/app/controllers/allocations_controller.rb
index d7ec421..4e7cc70 100644
--- a/app/controllers/allocations_controller.rb
+++ b/app/controllers/allocations_controller.rb
@@ -33,6 +33,6 @@ def set_scenario
   end
 
   def allocation_params
-    params.require(:allocation).permit(:allocation_category_id, :option, :percentage, :amount, :note, :type)
+    params.require(:allocation).permit(:allocation_category_id, :option, :percentage, :amount, :note, :type, preference_category_ids: [])
   end
 end
diff --git a/app/javascript/controllers/dialog_controller.js b/app/javascript/controllers/dialog_controller.js
index ea5e35b..e610f5c 100644
--- a/app/javascript/controllers/dialog_controller.js
+++ b/app/javascript/controllers/dialog_controller.js
@@ -12,4 +12,10 @@ export default class extends Controller {
   close() {
     this.dialogTarget.close()
   }
+
+  backdropClose(event) {
+    if (event.target === this.dialogTarget) {
+      this.dialogTarget.close()
+    }
+  }
 }
diff --git a/app/models/allocation.rb b/app/models/allocation.rb
index e5f4f67..012867c 100644
--- a/app/models/allocation.rb
+++ b/app/models/allocation.rb
@@ -2,6 +2,9 @@ class Allocation < ApplicationRecord
   belongs_to :scenario
   belongs_to :allocation_category, optional: true
 
+  has_many :allocation_preferences, dependent: :destroy
+  has_many :preference_categories, through: :allocation_preferences, source: :allocation_category
+
   validate :category_or_option_present
 
   def display_label
diff --git a/app/models/allocation_category.rb b/app/models/allocation_category.rb
index c4add37..da716c5 100644
--- a/app/models/allocation_category.rb
+++ b/app/models/allocation_category.rb
@@ -3,6 +3,7 @@ class AllocationCategory < ApplicationRecord
   belongs_to :parent, class_name: "AllocationCategory", optional: true
   has_many :children, class_name: "AllocationCategory", foreign_key: :parent_id, dependent: :destroy
   has_many :allocations, dependent: :nullify
+  has_many :allocation_preferences, dependent: :destroy
 
   validates :name, presence: true
   validates :type, inclusion: { in: ->(_) { TAB_CLASSES } }
diff --git a/app/models/allocation_preference.rb b/app/models/allocation_preference.rb
new file mode 100644
index 0000000..49235b7
--- /dev/null
+++ b/app/models/allocation_preference.rb
@@ -0,0 +1,4 @@
+class AllocationPreference < ApplicationRecord
+  belongs_to :allocation
+  belongs_to :allocation_category
+end
diff --git a/app/views/scenarios/_additional_preferences.html.erb b/app/views/scenarios/_additional_preferences.html.erb
new file mode 100644
index 0000000..ed452df
--- /dev/null
+++ b/app/views/scenarios/_additional_preferences.html.erb
@@ -0,0 +1,28 @@
+<%# locals: (allocation:, scenario:, suffix:) %>
+<% roots_by_type = scenario.organization.allocation_categories
+       .where(parent_id: nil).order(:name).group_by(&:type) %>
+<% selected_ids = allocation.preference_category_ids %>
+
+<% if roots_by_type.any? %>
+  <div class="mt-6">
+    <span class="block text-sm text-ink-soft">Additional preferences</span>
+
+    <%# Ensures the list is cleared when nothing is checked. %>
+    <%= hidden_field_tag "allocation[preference_category_ids][]", "" %>
+
+    <% AllocationCategory::TAB_CLASSES.each do |klass_name| %>
+      <% roots = roots_by_type[klass_name] %>
+      <% next if roots.blank? %>
+      <p class="mt-4 text-xs font-medium uppercase tracking-wide text-ink-faint"><%= klass_name.constantize.tab_label %></p>
+      <div class="mt-2 flex flex-wrap gap-2">
+        <% roots.each do |cat| %>
+          <label class="inline-block cursor-pointer rounded-full border border-line bg-surface px-3 py-1 text-sm text-ink-soft transition hover:bg-canvas has-[:checked]:border-accent has-[:checked]:bg-accent has-[:checked]:text-white">
+            <%= check_box_tag "allocation[preference_category_ids][]", cat.id, selected_ids.include?(cat.id),
+                  id: "pref_#{suffix}_#{cat.id}", class: "sr-only" %>
+            <%= cat.name %>
+          </label>
+        <% end %>
+      </div>
+    <% end %>
+  </div>
+<% end %>
diff --git a/app/views/scenarios/_allocation.html.erb b/app/views/scenarios/_allocation.html.erb
index 048f6ec..a3349f5 100644
--- a/app/views/scenarios/_allocation.html.erb
+++ b/app/views/scenarios/_allocation.html.erb
@@ -10,7 +10,7 @@
         <div class="min-w-0">
           <p class="font-medium text-ink truncate"><%= allocation.display_label %></p>
           <p class="mt-0.5 text-sm text-ink-soft truncate">
-            <%= allocation.note.presence || "No additional preferences" %>
+            <%= allocation.preference_categories.map(&:name).join(", ").presence || "No additional preferences" %>
           </p>
         </div>
         <div class="flex items-start gap-3 shrink-0">
@@ -63,6 +63,9 @@
     <div class="flex items-start justify-between gap-3 rounded-lg border border-line-soft bg-surface px-4 py-3 transition hover:shadow-sm">
       <div class="min-w-0">
         <p class="font-medium text-ink truncate"><%= allocation.display_label %></p>
+        <% if allocation.preference_categories.any? %>
+          <p class="mt-0.5 text-sm text-ink-soft"><%= allocation.preference_categories.map(&:name).join(", ") %></p>
+        <% end %>
         <% if allocation.note.present? %>
           <p class="mt-1 text-sm text-ink-soft"><%= allocation.note %></p>
         <% end %>
diff --git a/app/views/scenarios/_allocation_modal.html.erb b/app/views/scenarios/_allocation_modal.html.erb
index 6d0736c..fc53430 100644
--- a/app/views/scenarios/_allocation_modal.html.erb
+++ b/app/views/scenarios/_allocation_modal.html.erb
@@ -4,7 +4,7 @@
 <% suffix = editing ? dom_id(allocation) : klass.model_name.element %>
 <% percentage = allocation.percentage || 20 %>
 <% color ||= ScenariosHelper::CHART_COLORS.first %>
-<dialog data-dialog-target="dialog" class="m-auto w-full max-w-lg rounded-2xl p-0 shadow-lg backdrop:bg-[rgba(20,18,14,0.48)]">
+<dialog data-dialog-target="dialog" data-action="click->dialog#backdropClose" class="m-auto w-full max-w-lg rounded-2xl p-0 shadow-lg backdrop:bg-[rgba(20,18,14,0.48)]">
   <%= form_with url: (editing ? scenario_allocation_path(scenario, allocation) : scenario_allocations_path(scenario)), method: (editing ? :patch : :post), class: "p-8" do |form| %>
     <%= hidden_field_tag "allocation[type]", klass.name %>
     <h2 class="font-serif font-medium text-2xl text-ink"><%= editing ? "Edit allocation" : "Create allocation" %></h2>
@@ -34,6 +34,8 @@
       </div>
     <% end %>
 
+    <%= render "scenarios/additional_preferences", allocation: allocation, scenario: scenario, suffix: suffix %>
+
     <div class="mt-6">
       <%= label_tag "allocation_note_#{suffix}", "Note (optional)", class: "block text-sm text-ink-soft" %>
       <%= text_area_tag "allocation[note]", allocation.note, id: "allocation_note_#{suffix}", rows: 3, placeholder: "Extra preferences, restrictions, e.g. need-based scholarships only, exclude specific orgs…",
diff --git a/app/views/scenarios/show.html.erb b/app/views/scenarios/show.html.erb
index 67176cf..da1c914 100644
--- a/app/views/scenarios/show.html.erb
+++ b/app/views/scenarios/show.html.erb
@@ -26,13 +26,13 @@
       <%= render "allocation_section",
             title: "On going giving",
             klass: Allocation::Ongoing,
-            allocations: @scenario.ongoing_allocations,
+            allocations: @scenario.ongoing_allocations.includes(:allocation_category, :preference_categories),
             scenario: @scenario %>
 
       <%= render "allocation_section",
             title: "One time giving",
             klass: Allocation::OneTime,
-            allocations: @scenario.one_time_allocations,
+            allocations: @scenario.one_time_allocations.includes(:allocation_category, :preference_categories),
             scenario: @scenario %>
     </div>
 
diff --git a/db/migrate/20260627000000_create_allocation_preferences.rb b/db/migrate/20260627000000_create_allocation_preferences.rb
new file mode 100644
index 0000000..77b2948
--- /dev/null
+++ b/db/migrate/20260627000000_create_allocation_preferences.rb
@@ -0,0 +1,12 @@
+class CreateAllocationPreferences < ActiveRecord::Migration[8.1]
+  def change
+    create_table :allocation_preferences do |t|
+      t.references :allocation, null: false, foreign_key: true
+      t.references :allocation_category, null: false, foreign_key: true
+
+      t.timestamps
+    end
+
+    add_index :allocation_preferences, [ :allocation_id, :allocation_category_id ], unique: true, name: "index_allocation_preferences_uniqueness"
+  end
+end
diff --git a/db/schema.rb b/db/schema.rb
index 6956000..867a6d6 100644
--- a/db/schema.rb
+++ b/db/schema.rb
@@ -10,7 +10,7 @@
 #
 # It's strongly recommended that you check this file into your version control system.
 
-ActiveRecord::Schema[8.1].define(version: 2026_06_23_160001) do
+ActiveRecord::Schema[8.1].define(version: 2026_06_27_000000) do
   create_table "active_storage_attachments", force: :cascade do |t|
     t.string "name", null: false
     t.string "record_type", null: false
@@ -51,6 +51,16 @@
     t.index ["parent_id"], name: "index_allocation_categories_on_parent_id"
   end
 
+  create_table "allocation_preferences", force: :cascade do |t|
+    t.integer "allocation_id", null: false
+    t.integer "allocation_category_id", null: false
+    t.datetime "created_at", null: false
+    t.datetime "updated_at", null: false
+    t.index ["allocation_category_id"], name: "index_allocation_preferences_on_allocation_category_id"
+    t.index ["allocation_id", "allocation_category_id"], name: "index_allocation_preferences_uniqueness", unique: true
+    t.index ["allocation_id"], name: "index_allocation_preferences_on_allocation_id"
+  end
+
   create_table "allocations", force: :cascade do |t|
     t.integer "scenario_id", null: false
     t.string "type", null: false
@@ -121,6 +131,8 @@
   add_foreign_key "active_storage_variant_records", "active_storage_blobs", column: "blob_id"
   add_foreign_key "allocation_categories", "allocation_categories", column: "parent_id"
   add_foreign_key "allocation_categories", "organizations"
+  add_foreign_key "allocation_preferences", "allocation_categories"
+  add_foreign_key "allocation_preferences", "allocations"
   add_foreign_key "allocations", "allocation_categories"
   add_foreign_key "allocations", "scenarios"
   add_foreign_key "organization_memberships", "organizations"
diff --git a/db/seeds.rb b/db/seeds.rb
index b8265b6..e0b4444 100644
--- a/db/seeds.rb
+++ b/db/seeds.rb
@@ -71,6 +71,7 @@
 
 education_category = arlington.allocation_categories.find_by!(name: "Education")
 youth_category = arlington.allocation_categories.find_by!(name: "Children and Youth")
+low_income_category = arlington.allocation_categories.find_by!(name: "Low-Income")
 
 owner = User.find_by!(email_address: "owner@example.com")
 
@@ -79,7 +80,8 @@
 end
 
 if balanced.allocations.empty?
-  balanced.ongoing_allocations.create!(allocation_category: education_category, percentage: 30)
+  balanced.ongoing_allocations.create!(allocation_category: education_category, percentage: 30,
+    preference_categories: [ youth_category, low_income_category ])
   balanced.ongoing_allocations.create!(allocation_category: youth_category, percentage: 40)
   # Demonstrates the free-text fallback for needs without a curated category.
   balanced.ongoing_allocations.create!(option: "Greatest Community Need", percentage: 30)
diff --git a/test/controllers/allocations_controller_test.rb b/test/controllers/allocations_controller_test.rb
index 754c8ff..7fe24f0 100644
--- a/test/controllers/allocations_controller_test.rb
+++ b/test/controllers/allocations_controller_test.rb
@@ -27,6 +27,29 @@ class AllocationsControllerTest < ActionDispatch::IntegrationTest
     assert_equal category, @scenario.allocations.order(:created_at).last.allocation_category
   end
 
+  test "creates an allocation with additional preferences" do
+    youth = allocation_categories(:population_youth)
+    education = allocation_categories(:program_education)
+    post scenario_allocations_url(@scenario), params: {
+      allocation: { type: "Allocation::Ongoing", option: "Mixed", percentage: 25,
+                    preference_category_ids: [ "", youth.id, education.id ] }
+    }
+    assert_redirected_to scenario_path(@scenario)
+    allocation = @scenario.allocations.order(:created_at).last
+    assert_equal [ youth, education ].sort_by(&:id), allocation.preference_categories.sort_by(&:id)
+  end
+
+  test "updating with an empty preference list clears existing preferences" do
+    allocation = allocations(:greatest_need)
+    allocation.update!(preference_category_ids: [ allocation_categories(:population_youth).id ])
+
+    patch scenario_allocation_url(@scenario, allocation), params: {
+      allocation: { preference_category_ids: [ "" ] }
+    }
+    assert_redirected_to scenario_path(@scenario)
+    assert_empty allocation.reload.preference_categories
+  end
+
   test "creates a one time allocation" do
     assert_difference -> { @scenario.allocations.count }, 1 do
       post scenario_allocations_url(@scenario), params: {
diff --git a/test/models/allocation_test.rb b/test/models/allocation_test.rb
index a4dcb2c..920ddd5 100644
--- a/test/models/allocation_test.rb
+++ b/test/models/allocation_test.rb
@@ -47,6 +47,18 @@ class AllocationTest < ActiveSupport::TestCase
     assert_equal 1500, allocations(:greatest_need).dollar_amount
   end
 
+  test "preference_categories can be assigned and destroying the allocation removes the join rows" do
+    allocation = allocations(:greatest_need)
+    youth = allocation_categories(:population_youth)
+    education = allocation_categories(:program_education)
+    allocation.update!(preference_category_ids: [ youth.id, education.id ])
+    assert_equal [ youth, education ].sort_by(&:id), allocation.preference_categories.sort_by(&:id)
+
+    assert_difference -> { AllocationPreference.count }, -2 do
+      allocation.destroy
+    end
+  end
+
   test "kind predicates reflect the subclass" do
     assert allocations(:greatest_need).ongoing?
     assert_not allocations(:greatest_need).one_time?