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The state of Alabama requires you to pay taxes if you are a resident or nonresident that receives income from an Alabama source. The state income tax rates range from 0% to 5%, and the sales tax rate is 4%.
Alabama offers tax deductions and credits to reduce your tax liability, including deductions for medical or dental expenses paid and gifts to charity, as well as a tax credit for adoption.
Alabama Income Tax Brackets and Rates: Single, Married/Registered Domestic Partner Filing Separately, or Head of Family
Alabama Income Tax Brackets and Rates: Married/Registered Domestic Filing Jointly
Income Tax Deductions for Alabama
If you take the standard deduction, the total amount will depend on your Alabama adjusted gross income (AGI) and filing status. The allowable deduction decreases as your income increases.
Here is an overview of what you can expect:
- Single: $2,000 – $2,500
- Married filing separately: $2,000 – $3,750
- Head of family: $2,000 – $4,700
- Married filing jointly: $4,000 – $7,500
Notably, married couples filing separately must choose to take the same type of deduction, unless both taxpayers have been living separately for the full tax year.
Medical and Dental Expenses
Alabama allows you to deduct the portion of your medical and dental expenses that is more than 4% of the total Alabama AGI you’ve spent on those items during the 2021 tax year.
Expenses like co-pays, prescription drug costs, and hospital care are eligible for this deduction, while employer-sponsored health insurance premiums, the cost for basic Medicare insurance, and funeral and burial costs are not.
If you paid taxes on any of the following items during the last tax year, you could deduct them from your taxable income:
- Real estate taxes
- FICA tax (Social security and Medicare)
- Federal self-employment taxes
- Railroad retirement tax
- City, county, and occupational tax
- State unemployment insurance tax
- Federal gift taxes
- Personal property tax
- Generation-skipping transfer tax
Meanwhile, Alabama doesn’t allow you to deduct some taxes. These taxes include state and local sales taxes, taxes you paid for someone else and income taxes paid to a foreign country. And while state income taxes aren’t deductible, taxes paid to another state may qualify for a tax credit.
Gifts to Charity
You can deduct charitable contributions up to the limit permitted by federal law. However, when determining any limitations, you must use your Alabama AGI.
Gifts to religious organizations, nonprofit organizations, and cultural or veterans groups are allowed under this deduction. Political contributions aren’t.
Alabama also allows deductions on certain job-related expenses, such as travel and transportation expenses, union dues, and uniform costs, for which your employer hasn’t reimbursed you. Although, per state law, you must deduct 2% of your Alabama AGI from these expenses before taking the deduction.
However, there are other miscellaneous deduction expenses not subject to the 2% limit such as gambling losses up to the amount of your gambling winnings, the amount of any unrecovered investment in a pension up to the federal limit and impairment-related work expenses for disabled taxpayers.
Alabama State Income Tax Credits
Basic Skills Education Tax Credit
Resident and nonresident employers who provide approved basic education programs to their employees. The credit is equal to 20% of the actual costs of education and is limited to the employer’s total tax liability.
If you receive reimbursement for these education costs, you will not be considered eligible for this credit.
Rural Physician Tax Credit
Physicians who live in an Alabama community with fewer than 25,000 people and practice at a small or rural hospital with an emergency room may be eligible for a $5,000 tax credit. Although, it extends to $10,000 for married filing jointly taxpayers, provided the spouses qualify for the credit individually both.
The state defines “a small or rural hospital” as an acute care hospital with less than 105 beds located more than 20 miles from another acute care facility.
This credit can only be claimed for up to five consecutive tax years.
Those who met the requirements on or before May 5, 1993 aren’t eligible. Nor is any physician who has previously worked at a qualifying hospital, unless they return to the rural hospital after practicing in a larger community for a minimum of three years.
Alabama Adoption Tax Credit
Taxpayers who have recently adopted a child through private adoption or the foster care system may be eligible for a tax credit worth $1,000 per qualifying child.
To qualify for the adoption through private agency credit, the adoptive parent(s) must reside in Alabama. To qualify for the adoption through foster care credit, the child must have been in permanent custody of the Alabama Department of Human Resources.
Do I Have to Pay Income Tax in Alabama?
Whether or not you need to file a tax return in Alabama depends on your filing status, residency, and Alabama AGI.
Related: Alabama Income Tax Calculator
Sales Tax and Sales Tax Rates
The general sales tax rate in Alabama is 4%. However, certain purchases, such as farm equipment, automobiles, and food and beverage items, are taxed at different rates.
Property Taxes and Property Tax Rates
Property Tax Rates
Property tax rates are set by each county.
Capital Gains Taxes
Capital gains are taxed as ordinary income.
Inheritance and Estate Taxes
Under federal law, Alabama doesn’t require an estate or inheritance tax filing for deaths that occurred after December 31, 2004.
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