Alabama does have a state income tax
Alabama taxes your wages, investment income, and most other forms of personal income. Unlike seven states that have no income tax at all, Alabama requires residents to file a state return and pay tax on earnings above a certain threshold. The state uses a progressive tax system, meaning the percentage you pay increases as your income rises.
If you work in Alabama or live there, you will owe state income tax on most types of income. This is separate from federal income tax — you file both returns. The state also taxes retirement income, capital gains, and business profits, though some sources like Social Security benefits receive special treatment.
Key Takeaways
- Alabama has a state income tax with rates ranging from 2% to 5.75% depending on your income level.
- You must file an Alabama return if you earned more than the state's filing threshold, which varies by age and filing status.
- Social Security benefits are not taxed by Alabama, but retirement account withdrawals and pension income usually are.
- If you moved to Alabama from another state, you may owe tax to both states for the year you moved, depending on when you relocated.
Alabama's tax rates and income brackets
Alabama uses six tax brackets. The lowest rate is 2% on income up to $500, and the highest is 5.75% on income over $3,000. These brackets explore to your taxable income after deductions, not your total earnings. The brackets have not changed since 1991, which means they do not adjust for inflation each year the way federal brackets do.
Your actual tax bill depends on where your income falls across these brackets. If you earn $25,000, you do not pay 5.75% on all of it — you pay 2% on the first $500, then higher percentages on each bracket above that. The state provides worksheets and tax software that calculate this automatically, so you do not have to do it by hand.
Who has to file an Alabama state return
You must file if your income exceeds the state's threshold for your age and filing status. For 2024, a single person under 65 must file if they earned more than $13,500. A married couple filing jointly with both spouses under 65 must file if they earned more than $27,000 combined. These thresholds are higher if you are 65 or older — currently $15,500 for a single filer and $31,000 for a married couple.
Even if you do not meet the filing threshold, you should file if you had taxes withheld from your paychecks. Filing may result in a refund. You also must file if you owe self-employment tax or if you had business income. Check the Alabama Department of Revenue website for the current year's thresholds, as they can change.
Types of income Alabama taxes
Alabama taxes wages, salaries, tips, and other compensation from work. It also taxes interest and dividend income, capital gains from selling investments, rental income, and self-employment income. If you received a 1099 form from a client or customer, that income is taxable in Alabama.
Retirement account withdrawals are taxed — this includes distributions from traditional IRAs, 401(k)s, and similar plans. Pension income is also taxable. However, Social Security benefits are not taxed by Alabama, even if they are taxed at the federal level. Some retirement income may be excluded under Alabama's retirement income exclusion, which allows certain taxpayers to exclude up to $12,000 of retirement income, but this has specific requirements based on age and income level.
How withholding works in Alabama
If you are employed, your employer withholds Alabama state tax from each paycheck based on the form you complete — the Alabama Form A-4. This is similar to the federal W-4 but specific to state tax. The amount withheld depends on your income, filing status, and the number of dependents you claim.
If you do not have enough withheld during the year, you will owe tax when you file your return. If too much is withheld, you receive a refund. You can adjust your withholding by submitting a new Form A-4 to your employer at any time. Self-employed people and those with investment income may need to make quarterly estimated tax payments instead of having tax withheld.
Moving to or from Alabama mid-year
If you moved to Alabama partway through the year, you may owe tax to both Alabama and your previous state for the portion of the year you lived in each place. The state you lived in on December 31 is the one that typically claims you as a resident for the full year, but you may still owe part-year tax to the other state. Some states have reciprocal agreements that reduce or eliminate this double taxation, but Alabama's agreements vary by state.
When you file, you will report your income to both states and claim a credit on one return for taxes paid to the other. The exact calculation depends on each state's rules. If you moved mid-year, keep records of when you left your previous state and when you arrived in Alabama, as you may need to provide proof of residency.
Where to file your Alabama return
You file your Alabama return with the Alabama Department of Revenue. The state accepts returns filed by mail or electronically through approved tax software. Many free tax software options are available through the IRS Free File program if your income is below a certain threshold — these programs also file your Alabama return at no cost.
The filing important date is the same as the federal important date, typically April 15. If you file your federal return late, your Alabama return is also late. You can request an extension, which gives you until October 15 to file, but extensions do not extend the time to pay — taxes owed are due by April 15 regardless.
Frequently Asked Questions
Do I have to pay Alabama income tax if I work there but live in another state?
Yes, you owe Alabama tax on income you earned in the state, even if you live elsewhere. However, you may also owe tax to your home state. Most states allow you to claim a credit for taxes paid to another state to avoid paying twice on the same income. File returns in both states and claim the credit on your home state return.
Is military income taxed by Alabama?
Military pay is subject to federal tax but not to Alabama state tax if you are not an Alabama resident. If you are stationed in Alabama and claim it as your home state, you owe Alabama tax on your military income. If you are stationed there but claim another state as your legal residence, you do not owe Alabama tax.
What if I did not file an Alabama return in previous years?
Contact the Alabama Department of Revenue to discuss your situation. The state may assess penalties and interest on unpaid taxes, but filing late is better than not filing. The department can help you determine what you owe and set up a payment plan if needed.
Can I deduct federal income tax from my Alabama return?
No, Alabama does not allow a deduction for federal income tax paid. You can deduct state and local taxes (SALT) on your federal return up to $10,000, but that is a federal benefit, not an Alabama one.