Alabama has progressive income tax rates from 2% to 5% — with a unique federal income tax deduction.
Alabama Income Tax Rates for 2026
Single Filers
| Taxable Income | Tax Rate |
|---|---|
| $0 - $500 | 2% |
| $500 - $3,000 | 4% |
| Over $3,000 | 5% |
Married Filing Jointly
| Taxable Income | Tax Rate |
|---|---|
| $0 - $1,000 | 2% |
| $1,000 - $6,000 | 4% |
| Over $6,000 | 5% |
Note: Top rate applies at very low income thresholds.
Alabama Tax Calculator Examples
Example 1: $75,000 Single Filer
| Component | Calculation |
|---|---|
| Gross income | $75,000 |
| Less: Standard deduction | -$2,500 |
| Less: Personal exemption | -$1,500 |
| Less: Federal tax deduction | -~$7,500 |
| Taxable income | ~$63,500 |
| Tax on first $3,000 | $110 |
| Tax on remaining (5%) | $3,025 |
| Total Alabama tax | ~$3,135 |
| Effective rate | ~4.2% |
Example 2: $120,000 Married Filing Jointly
| Component | Calculation |
|---|---|
| Gross income | $120,000 |
| Less: Standard deduction | -$7,500 |
| Less: Personal exemptions | -$3,000 |
| Less: Federal tax deduction | -~$15,000 |
| Taxable income | ~$94,500 |
| Tax on first $6,000 | $220 |
| Tax on remaining (5%) | $4,425 |
| Total Alabama tax | ~$4,645 |
| Effective rate | ~3.9% |
Alabama Federal Tax Deduction
Unique feature: Alabama is one of only three states that allows a full deduction of federal income taxes paid. This significantly reduces state taxable income.
| Federal Tax Paid | State Tax Reduction |
|---|---|
| $10,000 | $500 savings (5% × $10,000) |
| $20,000 | $1,000 savings |
| $30,000 | $1,500 savings |
Higher federal tax = lower Alabama tax.
Alabama Standard Deduction & Exemptions (2026)
Standard Deduction
| Filing Status | Standard Deduction |
|---|---|
| Single | $2,500 |
| Married Filing Jointly | $7,500 |
| Married Filing Separately | $3,750 |
| Head of Household | $4,700 |
Personal Exemptions
| Dependent Status | Exemption |
|---|---|
| Single | $1,500 |
| Married (per spouse) | $1,500 |
| Dependent | $1,000 |
| 65+ | Additional $1,000 |
| Blind | Additional $1,000 |
Alabama Retirement Income
Social Security
Fully exempt — Alabama does not tax Social Security benefits.
Pension Income
| Pension Type | Tax Treatment |
|---|---|
| Federal government pensions | Exempt |
| Alabama state pensions | Exempt |
| Military retirement | Exempt |
| Private pensions | Taxable (federal deduction helps) |
| 401(k)/IRA withdrawals | Taxable |
Benefits for Seniors
- Additional $1,000 personal exemption at age 65
- Social Security exempt
- Public pensions exempt
- Federal tax deduction reduces burden on taxable retirement income
What Income is Taxed in Alabama?
Taxed:
- Wages and salaries
- Self-employment income
- Interest and dividends
- Capital gains (taxed as ordinary income)
- Private pension income
- 401(k)/IRA withdrawals
Not taxed or exempt:
- Social Security — Fully exempt
- Federal/state/military pensions
- Federal income taxes paid (deductible)
- Alabama municipal bond interest
Alabama vs. Neighboring States
| State | Top Income Tax Rate |
|---|---|
| Florida | 0% (no income tax) |
| Tennessee | 0% (no income tax) |
| Georgia | 5.49% |
| Mississippi | 4.7% |
| Alabama | 5% |
Alabama falls in the middle; Florida and Tennessee have no income tax.
Filing Alabama State Taxes
| Filing Requirement | Details |
|---|---|
| Form | 40 (residents), 40NR (nonresidents) |
| Due date | April 15 |
| E-file | Yes, through My Alabama Taxes |
| Extension | 6 months if requested |
Alabama Sales Tax
- State rate: 4%
- Local rates: 1-7.5% additional
- Total range: 5% - 11.5%
- Groceries taxed at full rate (one of few states)
Note: Alabama has high combined sales tax rates.
Alabama Property Tax
- Average effective rate: ~0.39% (second lowest in nation)
- Strong homestead exemption
- Very favorable for homeowners
Tips to Reduce Alabama Taxes
- Federal tax deduction — Optimize federal taxes paid
- Claim all exemptions — $1,500 per person
- 65+ exemption — Additional $1,000
- Pension planning — Public pensions exempt
- Consider Roth accounts — Avoid taxable retirement withdrawals
- Itemize federal — May reduce state burden
Alabama Tax Authority
Alabama Department of Revenue
- Website: revenue.alabama.gov
- Phone: 334-242-1170
- For refunds, returns, and questions
Bottom Line
Alabama has progressive income tax rates from 2% to 5%, but the unique federal income tax deduction reduces effective rates significantly. Social Security and public pensions are exempt, and property taxes are among the lowest nationally (0.39%). However, sales taxes are high (up to 11.5%), and groceries are taxed. The federal tax deduction makes Alabama more tax-friendly than its 5% top rate suggests.