Alabama — Personal Income Tax

Individuals domiciled in Alabama are subject to Alabama personal income tax on their entire income, whether earned within or outside Alabama, regardless of their physical presence in the state during the taxable year. Domicile is defined as the place where one lives, has a permanent home, and has the intention of returning when absent. Each person has one and only one domicile, which continues until a new one is established coupled with abandonment of the old. A temporary absence from Alabama does not automatically change domicile for income tax purposes, and the burden of proving a change of domicile rests on the taxpayer.

Full-year Alabama residents must file a return if their gross income exceeds threshold amounts based on filing status: single filers must file if gross income is at least $4,000; married filing separately at $5,250; head of family at $7,700; and married filing jointly at $10,500.

Source: Alabama Department of Revenue — Who must file an Alabama Individual Income Tax Return?

Alabama imposes a graduated personal income tax on taxable income at three rates: 2%, 4%, and 5%. For single persons, heads of family, and married persons filing separately, the rates are 2% on the first $500 of taxable income, 4% on taxable income over $500 up to $3,000, and 5% on all taxable income over $3,000. For married persons filing jointly, the brackets are doubled: 2% on the first $1,000 of taxable income, 4% on taxable income over $1,000 up to $6,000, and 5% on all taxable income over $6,000. These rates apply to taxable income, which is Alabama adjusted gross income minus deductions and exemptions. The maximum rate of 5% is constitutionally capped by Amendment No. 25 to the Alabama Constitution of 1901.

Source: Ala. Code § 40-18-5 | Alabama Department of Revenue — Individual Income Tax Rate FAQ

Nonresident individuals who receive taxable income from property owned or business transacted within Alabama—including wages for personal services performed in the state—are subject to Alabama personal income tax on that Alabama-source income only. Nonresidents must file Form 40NR if their Alabama gross income exceeds the prorated personal exemption. The personal exemption is prorated by multiplying the standard personal exemption by the ratio of Alabama adjusted total income to adjusted total income from all sources. Part-year residents who have both resident and nonresident periods during the tax year must file two returns: Form 40 for income earned during the resident period and Form 40NR for Alabama-source income during the nonresident period.

NEW: 30-Day Safe Harbor (Effective for tax years beginning January 1, 2025)

For tax years beginning on or after January 1, 2025, a nonresident individual who performs employment duties or personal services in Alabama for 30 or fewer days in a calendar year will generally be exempt from Alabama personal income tax and corresponding filing obligations. Under Act 2025-334 (the 30-Day Safe Harbor Rule), such nonresidents are not required to file a return or pay tax on Alabama-source wages, unless they are employed by an employer that maintains Alabama residency or have other Alabama-source income not covered by the safe harbor. Alabama-source non-wage income or wages not qualifying for the safe harbor remain subject to the standard nonresident filing requirement. Employers may also be relieved of withholding obligations for these de minimis nonresident employees in conformance with the Act.

This is a material change effective for 2025, and practitioners should confirm the details and any regulatory clarifications or administrative bulletins issued by the Department.

Source: Ala. Admin. Code r. 810-3-15-.21 | Alabama Department of Revenue — Nonresident Filing FAQ | Alabama Department of Revenue — 30-Day Safe Harbor Rule

Alabama allows personal exemptions that reduce taxable income. Single filers and married taxpayers filing separately may claim a $1,500 personal exemption. Married couples filing jointly and head-of-family filers may claim a $3,000 personal exemption. When married taxpayers file separately, each spouse must claim a $1,500 personal exemption.

Dependent exemptions — tiered by adjusted gross income

Taxpayers may claim an exemption for each qualifying dependent who receives over half of their support from the taxpayer. The exemption amount is tiered by adjusted gross income under Ala. Code § 40-18-19(a)(9)(b), effective for tax years beginning after December 31, 2006:

• $1,000 per dependent for taxpayers with AGI equal to or less than $20,000
• $500 per dependent for taxpayers with AGI greater than $20,000 and equal to or less than $100,000
• $300 per dependent for taxpayers with AGI greater than $100,000

The base $300 dependent exemption established by subdivision (9)(a) continues to apply to taxpayers with AGI above $100,000. The statute defines a dependent as any person other than a spouse who is dependent upon the taxpayer and over half of whose support, for the calendar year in which the taxable year for the taxpayer begins, was received from the taxpayer.

Proration for nonresidents

Nonresident individual taxpayers are allowed only a prorated share of the personal exemption and dependent exemptions. The proration is calculated by multiplying the exemption amounts by the ratio of the nonresident's adjusted gross income received from Alabama sources to total adjusted gross income from all sources. This proration rule is set forth in Ala. Code § 40-18-19(b).

Source: Ala. Code § 40-18-19

Alabama allows taxpayers to claim an optional standard deduction in lieu of itemizing certain expenses. The deduction amount is income-based and varies by filing status. For single filers with adjusted gross income below $25,500, the standard deduction is $3,000; it phases down by $25 for each $500 of AGI exceeding that threshold, with a floor of $2,500. For married taxpayers filing jointly with AGI of $20,000 or less, the deduction is $7,500. The statute establishes phase-out schedules and minimum deduction floors for other filing statuses and income levels. Taxpayers may alternatively claim itemized deductions specified in the statute.

Source: Ala. Code § 40-18-15(b)

Alabama individual income tax returns are due on the same date as the corresponding federal income tax return, which is April 15 for most calendar-year individual taxpayers. When April 15 falls on a weekend or holiday, the return is due the next business day.

Automatic six-month extension

Alabama grants an automatic six-month extension of time to file, extending the deadline to October 15 for calendar-year filers. No extension form—paper or electronic—is required to be filed to obtain this automatic extension. The extension is granted automatically without any action by the taxpayer.

Extension of time to file is not an extension of time to pay

The automatic extension applies only to the filing deadline, not to the payment deadline. Taxpayers who anticipate owing additional tax must submit payment by the original April 15 due date using payment voucher Form 40V. Interest accrues on any unpaid tax from the original due date of the return (April 15 for calendar-year filers) until the date of payment, regardless of whether the taxpayer has an extension to file. Late payment penalties also apply if tax is not paid by the original due date.

Special rule for taxpayers abroad

Except in cases where taxpayers are abroad, no extension will be granted for more than six months. The Alabama Department of Revenue does not publish specific authority for longer extensions for taxpayers abroad comparable to the federal rule, but the general extension statute allows for this exception.

An extension means only that the taxpayer will not be assessed a penalty for filing the return after the original due date. It does not eliminate interest on unpaid tax or penalties for late payment of tax.

Source: Alabama Department of Revenue — Individual Income Tax Filing Information | Alabama Department of Revenue — When should I file my Alabama Individual Income Tax Return? | Alabama Department of Revenue — Due Dates

Alabama allows individual income taxpayers to deduct the amount of federal income tax paid or accrued within the taxable year when calculating Alabama taxable income. This deduction is authorized by Ala. Code § 40-18-15(c), which states: "A deduction is allowable for the amount of federal income tax paid or accrued within the taxable year." The deduction is constitutionally protected by Amendment 225 to the Alabama Constitution of 1901, which provides that "the individual taxpayer is allowed to deduct federal income tax paid from their individual gross income."

Full deduction for residents

Alabama resident taxpayers may deduct the full amount of federal income tax paid or accrued during the taxable year. The statute does not limit the deduction amount or impose a cap. The deduction is based on the taxpayer's method of accounting—federal income tax paid for cash-basis taxpayers, or federal income tax accrued for accrual-basis taxpayers.

Trade-off with optional increased standard deduction

Taxpayers who elect the optional increased standard deduction available to certain qualified persons under Ala. Code § 40-18-15.7 must forego the federal income tax deduction. Section 40-18-15.7(d) states: "Persons qualifying for the optional increased standard deduction must voluntarily forego their right to claim the federal income tax deduction as allowed by Section 40-18-15." This is an either-or election; taxpayers must choose between the two benefits.

Proration for nonresidents

Nonresident taxpayers may deduct only a prorated share of their federal income tax. Section 40-18-15(c) specifies the calculation: "In the case of a nonresident taxpayer, the amount of federal income tax deductible to Alabama shall be determined by the ratio that the amount of adjusted gross income received from sources within the State of Alabama bears to the amount of adjusted gross income received from sources within and outside the State of Alabama." This fraction—Alabama AGI divided by total AGI—is multiplied by the total federal income tax paid or accrued to determine the deductible amount for Alabama purposes.

Recognition in withholding

The federal income tax deduction is recognized for Alabama withholding purposes. Ala. Code § 40-18-71(a) provides that employers shall withhold Alabama income tax on wages "reduced by the optional standard deduction provided in subsection (b) of Section 40-18-15 and the federal income tax withheld." This allows employees to benefit from reduced Alabama withholding on a current basis, rather than waiting to claim the deduction on their annual return.

Practical significance

The federal income tax deduction substantially reduces Alabama taxable income. For a taxpayer with significant federal income tax liability, the Alabama tax savings equals 5% (Alabama's top marginal rate under Ala. Code § 40-18-5) of the federal tax deducted—a notable reduction in effective state tax liability. Alabama is one of a small number of states that permit taxpayers to deduct federal income tax when computing state taxable income.

Source: Ala. Code § 40-18-15 | Ala. Code § 40-18-15.7 | Ala. Code § 40-18-71 | Alabama Department of Revenue — Income Tax Incentives

Alabama allows resident individuals to claim a credit against Alabama income tax for income taxes paid to another state on income that is also subject to Alabama tax. This statutory credit applies both to traditional individual-level income taxes and to entity-level taxes paid by pass-through entities, such as partnerships or S corporations, in states that have enacted SALT cap workaround regimes.

Application to entity-level PTE taxes paid by partnerships and S corporations Under Ala. Code § 40-18-21(c)(1), a resident individual who reports their distributive share of pass-through entity income on their Alabama return may claim a credit for their proportionate share of income tax actually paid by the entity to another state or territory. This applies whether the tax was paid on behalf of the Alabama resident or was paid at the entity level because the other state does not recognize the entity as a pass-through for income tax purposes. Alabama specifically authorizes the credit even when the owner’s share of income is taxed at the entity level in the other state as a workaround to federal SALT deduction limitations.

Limitations and addback requirement Alabama limits the credit to the lesser of the actual tax paid to the other state or the Alabama tax that would be due on the same income. Alabama also requires that, for credit purposes, the share of PTE tax deducted from federal K-1 income must be added back in calculating Alabama taxable income. Thus, a resident taxpayer claiming the credit must include in Alabama income the amount of PTE tax paid by the entity on the taxpayer’s behalf for which a credit is claimed.

Documentation requirements To claim the credit for entity-level PTE taxes, Alabama requires resident individuals to complete Schedule CR with their Alabama Form 40 and attach a copy of the other state’s return (or pro forma return if none is required), the Schedule K-1 showing the PTE tax deduction, and documentation showing tax payment by the entity. The Alabama Department of Revenue’s FAQ for credit for taxes paid to other states describes these requirements in detail.

Department of Revenue guidance The Alabama Department of Revenue has published FAQs and instructions confirming that Alabama permits the credit for taxes paid at the entity level by a pass-through entity, subject to the addback and documentation rules above.

Source: Ala. Code § 40-18-21 Source: Alabama Department of Revenue — Credit for Pass-Through Entity Taxes Paid to Other States FAQ

Alabama exempts several categories of retirement income from personal income tax, with varying dollar limitations and eligibility conditions depending on the source and type of retirement payment.

Alabama state retirement system benefits — full exemption

Retirement allowances, pensions, annuities, and optional allowances approved by the Teachers' Retirement System of Alabama and the Employees' Retirement System of Alabama are fully exempt from Alabama income tax. These exemptions apply to benefits paid to retirees and their designated beneficiaries under the respective state retirement systems. The exemptions are authorized by Ala. Code § 40-18-19(a)(1) and (2), which incorporate by reference the tax-exempt status provided in the underlying statutes establishing those retirement systems (Ala. Code §§ 16-25-23 and 36-27-28).

Police and firefighter retirement — full exemption

All retirement compensation, allowances, pensions, and annuities received by eligible peace officers or firefighters (or their designated beneficiaries) from any Alabama police or firefighting retirement system are fully exempt from Alabama income tax, provided the payments result from police services or fire protection services rendered. Originally established in 1984 and 1987 with an $8,000 cap, the exemption was expanded to a full exemption for tax years beginning on or after January 1, 1991. The current full exemption is codified at Ala. Code § 40-18-19(a)(3), (4), and (5).

Military retirement — full exemption

All retirement payments or compensation received as retirement benefits from the military services of the United States and survivor benefits derived therefrom are fully exempt from Alabama income tax for tax years beginning on or after January 1, 1989. The exemption originally began in 1975 at $4,750, increased to $8,000 in 1983, to $10,000 in 1985, and became unlimited in 1989 under Ala. Code § 40-18-20(d).

Federal civil service retirement — full exemption

Income received as annuities under the United States Retirement System from the United States Government Civil Service Retirement and Disability Fund is fully exempt from Alabama income tax. This exemption, authorized by Ala. Code § 40-18-19(a)(5), includes income received from the Tennessee Valley Authority's pension system.

Defined benefit plans — full exemption

Payments from defined benefit plans, as defined by Internal Revenue Code § 414(j), are exempt from Alabama income tax to the extent the benefits are taxable for federal income tax purposes. This exemption applies to both qualified and nonqualified defined benefit plans, including excess benefit plans and supplemental executive retirement income plans (SERPs). The exemption does not apply to defined contribution plans such as 401(k) plans or IRA distributions. The regulation clarifies that where a combination of plans exists and the defined benefit plan distribution is reduced as a result, only the amount actually distributed from the defined benefit plan is exempt. This exemption is established by Ala. Admin. Code r. 810-3-19-.04.

General retirement income exemption for taxpayers 65 and older — partial exemption

Individual taxpayers age 65 or older may exclude a limited amount of taxable retirement income that does not otherwise qualify for a specific exemption listed above. For tax years 2023 through 2025, the exemption is $6,000 of taxable retirement income. Beginning January 1, 2026, the exemption increases to $12,000. This age-based exemption is available only to individuals who are 65 years of age or older and may only be claimed once per taxpayer. The exemption is codified at Ala. Code § 40-18-19(a)(13).

Interaction of exemptions

The exemptions for Alabama state retirement systems, police, firefighters, military, federal civil service, and defined benefit plans are categorical exemptions that apply without dollar limitation. Retirement income that qualifies for one of those exemptions is fully excluded from Alabama gross income. The $6,000/$12,000 exemption for taxpayers 65 and older is a residual exemption that applies only to taxable retirement income not already exempt under one of the specific categorical exemptions. For example, a 67-year-old retiree receiving a $30,000 pension from a private-sector defined benefit plan would exclude the entire $30,000 under the defined benefit exemption; the same retiree receiving $30,000 from IRA distributions would exclude $6,000 (or $12,000 for 2026 and later) under the age-65-and-older rule and owe Alabama tax on the balance.

Source: Ala. Code § 40-18-19 | Ala. Code § 40-18-20 | Ala. Admin. Code r. 810-3-19-.04

Alabama sources compensation paid to nonresidents for personal services based on where the services are physically performed, not where the employer is located or where the payment originates. Under Ala. Admin. Code r. 810-3-14-.05(b), if a nonresident employee performs all their work outside Alabama—for example, by telecommuting from another state—their wages are not considered Alabama-source income and are not subject to Alabama personal income tax, regardless of the Alabama employer’s location. Payment by an Alabama employer alone does not create Alabama-source income.

30-Day Safe Harbor effective January 1, 2026: Beginning with tax years starting on or after January 1, 2026, Act 2025-334 creates a "30-Day Safe Harbor" for nonresidents who work in Alabama for 30 or fewer days in a calendar year. If a nonresident employee physically works in Alabama for 30 or fewer days, and also performs duties in other states, and their resident state has a reciprocal exemption or does not impose an income tax, Alabama will not require the employee or employer to file, pay tax, or withhold on those Alabama wages. Note: The safe harbor is lost if the worker exceeds 30 days in Alabama during the year.

If a nonresident performs services in Alabama for more than 30 days, only the portion of their compensation attributable to days worked in Alabama becomes Alabama-source income, and the employer must withhold and report on the Alabama portion. The triggering of the safe harbor threshold does not make all wages taxable—only the Alabama-day portion.

A "day" for these purposes generally includes any day when the nonresident worked a majority of the day within Alabama’s physical boundaries for the employer, as further defined by Department guidance.

Summary:

• Compensation for services performed entirely outside Alabama is not subject to Alabama income tax.
• The 30-Day Safe Harbor (from 2026) exempts nonresidents working no more than 30 days in Alabama from Alabama tax and employer withholding, if other conditions are met.
• If the threshold is exceeded, only compensation for Alabama workdays is taxable and subject to withholding; services performed outside Alabama remain exempt.

Source: Ala. Admin. Code r. 810-3-14-.05 Source: Alabama Department of Revenue – 30-Day Safe Harbor Rule (Act 2025-334)

Alabama's personal exemption amounts, dependent exemption amounts, standard deduction amounts, and income tax bracket thresholds are set as fixed dollar values by statute with no provision for automatic inflation indexing or periodic formulaic adjustment. The personal exemption for single filers and married persons filing separately is $1,500; for married persons filing jointly or head of family, $3,000. These values, and the dependent exemptions which are tiered ($1,000/$500/$300 per dependent based on AGI), are established in Ala. Code § 40-18-19 and have remained unchanged except by direct legislative amendment. The statute includes no language authorizing annual or periodic adjustment by the Department of Revenue or by reference to an economic index.

Standard deduction amounts—including phaseout ceilings and floors—are similarly set by statute at Ala. Code § 40-18-15, for example, up to $7,500 for married filing jointly (for tax years prior to 2022), increased to $8,500 for tax years after December 31, 2021, as enacted by Act 2021-423. These amounts are fixed and do not automatically adjust for inflation or cost-of-living changes.

Tax bracket thresholds are also fixed and explicitly stated in Ala. Code § 40-18-5: for single, head of family, and married filing separately, 2% on the first $500 of taxable income, 4% over $500 up to $3,000, and 5% over $3,000; for married filing jointly, these brackets are doubled. There is no statutory language authorizing periodic adjustment or indexation.

Any change to these thresholds, exemptions, or deductions requires an act of the Legislature. As of June 2026, there is no mechanism for automatic update—amounts hold until amended by law.

Source: Ala. Code § 40-18-19 Source: Ala. Code § 40-18-15 Source: Ala. Code § 40-18-5

Alabama requires pass-through entities—including partnerships, S corporations, and LLCs taxed as partnerships—to address state income tax collection on behalf of nonresident owners through both composite return filing and nonresident withholding mechanisms.

Composite return requirement (Ala. Code § 40-18-24.2; Ala. Admin. Code r. 810-3-24.2-.01)

• If a pass-through entity has one or more nonresident members, shareholders, or partners, it must annually offer to include those nonresidents in an Alabama composite return (Form PTE-C), reporting their distributive Alabama-source income. The law covers "Subchapter K entities (partnerships/LLCs) and S corporations."
• The entity calculates and pays Alabama income tax for each included nonresident at 5% (the maximum individual rate). Participation in the composite return is elective for each nonresident owner; however, if the owner chooses not to participate, withholding applies (see below).
• An included nonresident’s Alabama income from the composite return is not subject to additional individual reporting unless that owner also has Alabama income from other sources (in which case the individual must file a separate return for those items per Ala. Admin. Code r. 810-3-24.2-.01(4)(b)).

Nonresident withholding requirement (Ala. Code § 40-18-24.2(d); Ala. Admin. Code r. 810-3-24.2-.01(3))

• Nonresident non-participating owners: The entity must withhold tax at the highest Alabama individual rate (5%) on a nonresident owner’s distributive share of Alabama-source income, whether distributed or not. The withholding is reported on Form 41, Schedule NRA.
• Exemptions (directly per regulation): Withholding is not required if (a) the nonresident owner's annual pro rata share of Alabama income is less than $1,000, (b) the nonresident entity is itself subject to Alabama composite or withholding requirements, or (c) the Department grants a waiver for reasonable cause. (Ala. Admin. Code r. 810-3-24.2-.01(3)(b)).
• The requirement applies regardless of distribution—tax is withheld even on amounts retained by the entity.

Key forms and mechanics

• The principal forms are Form PTE-C (composite return), Form 41 (entity income tax return), and Schedule NRA (withholding for nonparticipant nonresidents). Form numbers and instructions are confirmed in DOR guidance.
• S corporations follow the same statutory duty as partnerships for composite and withholding compliance, so long as Alabama S corporation status is elected.

Electing Pass-Through Entity (PTE-E) regime

• Since tax year 2021, entities may elect PTE-E status (Ala. Code § 40-18-24.4, not covered in full here), allowing them to pay Alabama tax at the entity level. This relieves the composite and withholding obligations described above, but only for years and owners covered by the election and proper filing.

Effective date

• These requirements have been in effect with respect to composite returns and nonresident withholding since tax years beginning after December 31, 2000 (per adoption of Ala. Code § 40-18-24.2 and corresponding regulations). The PTE-E option is effective for tax years beginning after December 31, 2020.

Source: Ala. Code § 40-18-24.2 Source: Ala. Admin. Code r. 810-3-24.2-.01 Source: Alabama Department of Revenue — Pass-Thru Entities: Subchapter K Entities (Partnerships) and S Corporations

Not yet human confirmed. Every substantive statement is welded to the cited statute, regulation, or official DOR guidance.

Alabama law does not impose any phase-out, income cap, or earnings limit on the credit for taxes paid to other states available to individual residents, apart from the statutory "lesser of" rule and the apportionment calculation described in Ala. Code § 40-18-21 and Ala. Admin. Code r. 810-3-21-.03. The only limits on the credit are:

• The credit cannot exceed the amount of Alabama tax that would otherwise be due on the same income (the “lesser of” rule; see § 40-18-21(a)(2)), and
• The amount available as a credit is further limited by the portion of income tax attributable to non-Alabama-source income, determined by apportionment per Rule 810-3-21-.03.

No additional earning limit, income cap, or phase-out There is no statutory or regulatory provision that phases out, reduces, or otherwise limits the credit based on the Alabama taxpayer's total income, AGI, or earnings level. The only applicable limitation is the “lesser-of” rule and the apportionment fraction.

No special restrictions for hybrid entities, guaranteed payments, or nonbusiness income The statute expressly extends credits to resident individual owners of pass-through entities (including partnerships, S corps, and LLCs electing partnership treatment) for their proportionate share of taxes paid by the entity to other states, whether paid on behalf of the individual or as entity-level tax (Ala. Code § 40-18-21(c)(1)). Neither § 40-18-21 nor the implementing regulations distinguish between different types of pass-through income, guaranteed payments, or ordinary business vs. nonbusiness income for purposes of claiming the credit. Thus, credit eligibility and calculation follow the same rules regardless of such distinctions, provided the income is included in Alabama gross income and is subject to tax in both states.

Source: Ala. Code § 40-18-21 Source: Ala. Admin. Code r. 810-3-21-.03

Not yet human confirmed. Every statement is traceable to the cited statute or regulation; as of this update, there is no primary authority evidence of additional phase-outs, income limits, or restrictions on the credit by type of income or pass-through arrangement.

Alabama law permits an individual income tax deduction for federal income tax (FIT) paid or accrued within the taxable year, with proration rules for nonresidents and part-year residents. A common question concerns situations where part of a taxpayer’s federal income tax liability is generated by federally taxable income that is exempt from Alabama income tax (such as municipal bond interest or foreign earned income). Alabama law does not expressly require a reduction or apportionment of the FIT deduction for tax attributable to such exempt income categories beyond the general rules for proration by residency and source.

Full-year Alabama residents: For full-year Alabama residents, the deductible FIT amount is the individual’s federal tax liability as computed on the federal return, reduced by federal credits and payments (see Ala. Admin. Code r. 810-3-15-.20). The statute and regulation do not instruct the taxpayer to further reduce the deductible FIT if part of the underlying income is not subject to Alabama income tax. Thus, even if a portion of your federal tax is paid on income such as tax-exempt municipal bond interest or foreign earned income, Alabama allows deduction of the entire federal liability, provided it was paid or accrued within the year.

Nonresidents and part-year residents: For nonresidents and part-year residents, Alabama requires proration of the FIT deduction based on the ratio of Alabama-source adjusted gross income (AGI) to AGI from all sources, per Ala. Code § 40-18-15(c) and reinforced in Ala. Admin. Code r. 810-3-15-.21. This proration is based on the Alabama-source percentage of total AGI, not an allocation of FIT attributable to individually exempt income items.

No special carve-out for exempt income Neither Alabama statutes nor regulations require additional adjustment to the FIT deduction when part of the tax arises from federally taxable but Alabama-exempt income. The general rule for FIT deduction applies unless or until the Department of Revenue publishes more specific guidance.

Source: Ala. Admin. Code r. 810-3-15-.20; Ala. Code § 40-18-15; Ala. Admin. Code r. 810-3-15-.21

Not yet human confirmed.

Alabama’s personal income tax statutes set the standard deduction, personal exemption amounts, and income tax bracket thresholds as fixed dollar amounts with no ongoing adjustment mechanism for inflation, cost-of-living, or other periodic economic changes. There is no statutory language authorizing the Alabama Department of Revenue, by regulation or administrative action, to increase, decrease, or otherwise adjust these figures except through an act of the Legislature.

Statutory amounts and change mechanism • The standard deduction, phased schedules, and floors/ceilings are enacted in Ala. Code § 40-18-15 and amended by periodic legislative action, such as Act 2021-423, which raised the deduction amounts after December 31, 2021. • Personal exemption and dependent exemption amounts are in Ala. Code § 40-18-19. Bracket thresholds are in Ala. Code § 40-18-5. None of these sections provides for nonstatutory adjustment. • Any change to these thresholds requires a bill passed by the Alabama Legislature and signed into law. No administrative agency or executive official has power to adjust these figures on an annual, periodic, or emergency basis.

No inflation indexing or emergency adjustment • Alabama does not have an inflation-indexing provision or automatic adjustment for these figures as seen in some other states. • Past increases—such as the rise in the standard deduction effective tax year 2022—have occurred by statute only. • Legislative process is required for any emergency, temporary, or mid-year change. The Department of Revenue may not unilaterally alter these amounts through rulemaking or executive order.

No administrative adjustment observed The Department of Revenue’s official publications, administrative rules, and forms reflect only the figures currently enacted by statute. There is no published authority or administrative precedent for interim or non-statutory modification of exemption, deduction, or bracket amounts.

Source: Ala. Code § 40-18-15 Source: Ala. Code § 40-18-19 Source: Ala. Code § 40-18-5

Taxpayers age 65 or older taking nonperiodic withdrawals from IRAs or other defined contribution plans must determine the portion of each distribution subject to Alabama income tax by recovering cost basis as tracked for federal purposes. Alabama does not mandate the use of the federal pro rata inclusion method nor require full basis recovery before taxing remaining distributions, but requires consistency with federally established basis as of the date Alabama domicile is established.

Federal vs. Alabama treatment—cost basis recovery: Alabama follows the taxpayer’s federal cost basis in the retirement account as of the date Alabama domicile is established (or, if always domiciled in Alabama, as tracked for federal purposes). Per Alabama Admin. Code r. 810-3-6-.16, "the basis of property for Alabama income tax purposes for individuals who establish domicile in Alabama after December 31, 1997, shall be the same as the basis used for federal income tax purposes on the date the individual becomes a resident of Alabama."

Calculating taxable amount—Form 40 and Schedule RS worksheet: If the federal Form 1099-R’s taxable amount does not reflect Alabama’s basis treatment (for example, due to differences in basis brought into Alabama or after nontaxable rollovers), taxpayers must use the Schedule RS worksheet in Alabama Form 40 instructions. The 2025 Form 40 booklet (page 13) provides step-by-step instructions:

1. Enter total distributions received.
2. Subtract the portion representing recovery of nondeductible/after-tax contributions (basis) as tracked federally.
3. Resulting balance is the amount taxable by Alabama.

Alabama does not state that basis must be fully emptied before income taxation begins, nor does it prescribe a strict pro rata inclusion model. The worksheet simply allows basis to be recovered in the order distributions are taken, consistent with federal tracking.

Example: A taxpayer age 68 with $90,000 after-tax basis in a $200,000 IRA withdrawing $20,000 in a year would exclude the portion representing basis, per the worksheet, until basis is exhausted, then pay Alabama tax on the remainder; if the federal 1099-R uses a different inclusion formula, Alabama’s worksheet governs the state result.

There is no special computation method or recovery ordering that applies only to taxpayers age 65 or older—the age-65+ rule affects exemption amount (see Ala. Code § 40-18-19(a)(13)), not the method for tracking or recovering IRA basis.

Source: Alabama Form 40 Instructions, 2025, p. 13, Schedule RS Worksheet Source: Ala. Admin. Code r. 810‑3‑6‑.16