How Do I Claim Alabama Unemployment Earnings on an Alabama State Tax Return?

In most cases, unemployment benefits aren't reported on Alabama income tax returns.

In Alabama, most money received from unemployment compensation isn't taxable. Selecting whether or not your benefits are taxable, however, isn't nearly as easy. Measure your situation against the following rules to determine if you owe Alabama money for your unemployment benefits.

Instructions

1. Do not report unemployment benefits administered through the state's unemployment insurance system on your Alabama tax return. This income must be claimed on your federal 1040 tax form, however.

2. Claim only amounts over $25,000 that were provided from your employer to you upon severance if the job loss was due to administrative downsizing. This includes lump-sum severance benefits and long-term benefits. Any amount that exceeds the $25,000 allowable minimum should be reported on Form 40, on Page 2, Section 1, Line 8, "Other Income." Severance pay must be reported to the Internal RevenueService (IRS) for federal income tax calculations, however.

3. If your severance package was reported as income by your employer when it was granted to you, contact your employer for a corrected W-2. Severance pay should not be reported as state wages.

References

• Alabama Department of Revenue: Form 40 Instruction Booklet (See Page 7)
• Internal Revenue Service: Unemployment Benefits

Resources

• Alabama Department of Revenue: Form 40