Overview of Alabama Taxes
Alabama collects a state income tax, with rates of 2%, 4% and 5%. In addition to a state sales tax, counties and cities are allowed to collect taxes on purchases made in their jurisdictions. Alabama is tax-friendly toward retirees. Social Security income is not taxed.
Alabama Income Tax Brackets
- For single people, heads of families and married people filing separate returns:
- 2% on the first $500 of taxable income.
- 4% on taxable income between $501 and $3,000.
- 5% on all taxable income over $3,000.
- For married people filing joint returns:
- 2% on the first $1,000 of taxable income.
- 4% on taxable income between $1,001 and $6,000.
- 5% on all taxable income over $6,000.
What is Taxable Income in Alabama?
Income received as wages, salaries, commissions, rental income, royalty payments, stock options, dividends and interest, and self-employment income are taxable. Inheritances, gifts, cash rebates, alimony payments, child support payments, most healthcare benefits, welfare payments, and qualifying adoption money are nontaxable.
Tax Exemptions for Retirees in Alabama
Alabama is tax-friendly toward retirees. Social Security income is not taxed in Alabama. The first $6,000 of retirement income for anyone 65 or older is exempt from Alabama income tax.