Alabama State Income Tax Requirements

Understanding Alabama's income tax requirements is important.

While Alabama is not one of the few states that exempts its residents from income tax, the state does rank very high for excellent tax rates. In fact, Alabama is considered number 48 among the states with regard to per capita tax rates (with this list also including states that have no income tax but have high rates for other taxes). Because of this, Alabama is increasingly popular among taxpayers, from retirees to young families.

Income Tax Brackets

The state of Alabama provides for three separate income brackets for taxation. These separate income brackets enable the state to determine the tax rate (see below). Not surprisingly, the tax rate increases as the income increases, so those at the top of the income bracket pay the most tax.

The first income bracket applies to those who make anywhere between $0 per year and $500 per year. The second income tax bracket applies to those who make between $501 per year and $3000 per year, and the final income tax bracket applies to those who make over $3001 per year.

Tax Rates

The tax rates on income in Alabama range from 2 percent to 5 percent. For taxpayers who fall into the first income bracket ($0-$500), the applied tax rate is only 2 percent. For taxpayers who fall into the second income bracket ($501-3000), the applied tax rate rises to 4 percent. Finally, for taxpayers who fall into the final income bracket ($3001 or more), the applied tax rate is 5 percent.

There is one major exception to these tax rates and how they are applied: those receiving a military retirement or some other federal retirement payment (such as retirement from the United States Civil Service Retirement system or the U.S. Government Retirement Fund) do not pay tax on their income.

Tax Exemptions

Within the income tax system, Alabama provides for a number of personal exemptions that many taxpayers can utilize while completing their taxes. Taxpayers can apply an exemption of $1500 for themselves and an extra $1500 for their spouses. Additionally, taxpayers have an exemption option ranging from $300 to $1000 for each dependent, which usually means children (excepting any foster children).

The state of Alabama notes that the standard deduction for individuals is usually around $2000, and the standard deduction for married couples who file jointly is typically around $7500.

References

• Alabama Department of Revenue
• Salary Wizard: Alabama State Income Tax Rates