Act 2025-334

30-Day Safe Harbor Rule

Act 2025-334 created a 30-day safe harbor rule exempting Alabama earnings from taxation for out-of-state workers performing services in Alabama for 30 or fewer days in a calendar year and alleviating tax return filing obligations for the employee and withholding tax obligations for the employer.

Exclusions to the safe harbor rule include individuals performing duties in their capacity as a professional athlete, professional entertainer, or public figure.

Otherwise, nonresident employees must meet the following requirements to qualify under Alabama’s 30-day safe harbor rule for income tax exemption:

1. The nonresident performs duties in Alabama 30 or fewer days during the calendar year.
   
2. The nonresident performs employment duties in more than one state during the calendar year.
   
3. The nonresident’s state has a similar exclusion, does not have an income tax, or the income is exempt for federal purposes.   

For reporting purposes:

Until the 30-day threshold is exceeded, employees and employers will continue to pay and withhold to their state of residence if a state income tax exists.

1. If the nonresident employment is 30 or fewer days within the calendar year, there is no Alabama withholding tax or filing obligation on the income. The employer reports the income and withholdings to the employee’s state of residence.
   
2. If the nonresident employment is 31 or more days within the calendar year, all income earned within the calendar year in Alabama is taxable income subject to Alabama withholding tax. The earnings and withholding tax will be reported to Alabama by the employer.

Discretion will be given in the case of any late penalties or interest for failing to report timely withholdings to Alabama if the 30-day threshold is exceeded.

A time and attendance record system should be used to allocate employees’ duties when working in multiple states.