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FAQ Categories / Tax: Income Tax Questions

There are four different filing statuses available under Alabama law:

Married Filing a Joint Return
Married Filing a Separate Return
Head of Family
Explanation of the filing statuses

For a list of income exempt from Alabama Income Tax, go to: Listing of exempt income items

All income is subject to Alabama income tax unless specifically exempted by state law. For examples of taxable income go to: Listing of taxable income

Interest on obligations of the State of Alabama or any county, city, or municipality of Alabama, and interest on obligations of the United States, or any of its possessions.

For single persons, heads of families, and married persons filing separate returns:

2% First $500 of taxable income

4% Next $2,500 of taxable income

5% All taxable income over $3,000

For married persons filing a joint return:

2% First $1,000 of taxable income

4% Next $5,000 of taxable income

5% All taxable income over $6,000

Certain taxpayers are eligible to contribute funds to a special savings account to save funds for a down payment and closing costs on the purchase of a first home in Alabama. Contributions up to $5,000 for a single taxpayer or $10,000 for married couples filing a joint return to this account may be deductible and earnings are tax free if all the requirements are met. The deduction is available for the 5 years in which deposits were made into a first time and second chance home buyer savings account.

Information about the Alabama First-Time and Second Chance Home Buyer Savings Account

Taxpayers using the Single and Married Filing Separately filing statuses are entitled to a $1,500 personal exemption. Taxpayers using the Married Filing Jointly and Head of Family filing statuses are entitled to a $3,000 personal exemption.

Part year residents are entitled to the full exemption amount. A dependent or student may claim a personal exemption even if claimed by someone else.

For information on who qualifies as your dependent for Alabama Income Tax purposes, go to: Information about dependents

Yes, with a few exceptions. In Alabama, a foster child does not qualify a taxpayer to claim “Head of Family.” Also, you must be unmarried in order to qualify for “Head of Family” filing status with the state.

You may use either method. Compute your deduction using both methods and compare the results. Base your deduction on the method resulting in the greatest advantage to you.

Contributions: Contributions to an individual retirement arrangement (IRA) may be taken as an adjustment to income, the same as for federal tax purposes. These deductible contributions represent a deferral of tax on a portion of your income.
Distributions: At the time funds are distributed from these IRA accounts, the amount on which tax has been deferred cannot be claimed as part of the cost basis in the fund.
Since Alabama income tax law prior to 1982 did not conform to federal tax law in this area, you may have a cost basis in the fund for amounts contributed prior to 1982.
Roth IRA: Alabama recognizes Roth IRA’s.

According to Alabama tax laws, “reasonable medical and legal expenses paid or incurred by the taxpayers in connection with the adoption of a minor may be deducted as an adjustment to income.  Medical expenses include any medical and hospital expenses of the adoptee and the adoptee's biological mothers which are incident of the adoptee's birth and subsequent medical care and in the case of the adoptee, are paid or incurred before the petition is granted. Adoption agency fees are not deductible."

Yes. Beginning with the tax year 2020, qualifying firefighters may exempt the following benefit payments from income to the extent the payments are included in their federal adjusted gross income:

Lump sum benefit payments to a firefighter as a result of a cancer diagnosis up to a lifetime benefit of $50,000.
Monthly benefit payments as a result of a specific injury or illness of $3,000 per month for 36 consecutive months to a career firefighter or certified volunteer firefighter or $1,500 per month to a non-certified volunteer firefighter otherwise not eligible for employment benefits.
In addition, firefighters may take a deduction for 100% of the insurance premiums they paid with after tax dollars to the extent the premiums have not been deducted from the federal adjusted gross income.

Yes. Alabama residents will be allowed to deduct contributions made on or after January 1, 2018, by or on behalf of such individual to a health savings account of such individual to coincide with annual amount allotted by federal law or regulation.

The Alabama standard deduction is based on the filing status used by the taxpayer. For tax years ending 12/31/2007 and forward, the Standard Deduction Chart is used to determine the Standard Deduction allowable on your return.

Military personnel who list Alabama as their home of record are required to pay Alabama income tax regardless of where they are assigned, or the length of time spent in Alabama. Alabama income tax law does not exempt active duty military.

Yes. Report your income on a Form 40NR. You can get a copy of this form on this website.

Exception: Under the Military Spouses Residency Relief Act (MSRRA), the spouse of an armed forces member is exempt from Alabama income tax when:

The employee’s spouse is a military service member.
The employee is NOT a military service member.
The military service member spouse has a current military order assigning him or her to a military location in Alabama.
The employee and military servicemember reside at the same address.
The employee’s domicile state is a state other than Alabama.
The employee’s and military service member’s domicile is the same.
The employee is present in Alabama solely to be with the military service member spouse.
In addition, the qualifying spouse should complete a Form A4-MS (https://revenue.alabama.gov/wp-content/uploads/2019/09/FA4MS9_19-1.pdf) with their employer claiming withholding tax exempt status.