Everything You Need to Know About Alabama Taxes

FT Contributor
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The Alabama Department of Revenue (DOR) administers and controls the tax system in the state. Residents and nonresidents are responsible for filing a tax return if they earned income in the state. They must also pay sales taxes and property taxes if they own property in Alabama.

Property taxes are extremely low in Alabama and the state ranks 49th when compared to other states. It imposes an average 0.37% property tax rate for an average of $548 in property tax collection per household.

Alabama Income Tax

If you earned income and live in Alabama, you must file a federal income tax return and a state return. Alabama income tax rates vary between 2% and 5%. These rates cannot increase due to limits imposed by the state’s Constitution. The tax rate that applies to you depends on your filing status and how much income you earned throughout the year.

If you’re filing your tax return as single, head of household, or married but filing separately, the following tax rates apply:

Taxable Income Tax Rate
First $500 2%
$501 to $3,000 4%
Over $3,001 5%

If you’re married and filing a joint return with your spouse, the following tax rates apply:

Taxable Income Tax Rate
First $1,000 2%
Next $5,000 earned 4%
Over $6,000 5%

You can choose to claim a standard deduction or to itemize your deductions, just as you did with your federal return. The standard deduction you qualify for is based on your income and filing status. A single filer can claim a standard deduction up to $2,000 or up to $4,000 for joint filers.

Single filers are also entitled to a $1,500 personal exemption on taxable income while joint filers can obtain a $3,000 personal exemption. Depending on the filer’s income, a claimed dependent may also qualify the taxpayer for a $300 exemption.

Alabama Sales Tax

When you purchase tangible property in Alabama, your purchase total is subject to a 4% general sales tax. The DOR allows counties and other jurisdictions to set local sales tax rates in addition to the general rate. This additional local tax increases the sales tax you’re responsible for paying, sometimes much higher than 4%. You can use the DOR’s city local tax chart or county local tax chart to find out the sales tax rate in your area.

Alabama Property Tax

Alabama property taxes are collected ad valorem, which means the amount of taxes you owe is based on the value of your property. While the DOR’s Property Tax Division oversees how property values are assessed, it’s up to your county assessor to evaluate your property.

A county assessor determines your property’s assessed value by analyzing its characteristics and current market value. The assessment of your property and your county’s current tax rate determines how much you owe. A city tax may also be imposed on your property, depending on its location.

You may qualify for a property tax exemption. If you’re over 65, blind, or permanently and totally disabled, you’re exempt from paying your state property taxes. However, you’re still responsible for county property taxes.

If you live in a single-family home as your primary residence, you may claim a homestead exemption with the state and your county. The type of exemption you qualify for varies depending on other household characteristics. Review the Homestead Exemption Chart to find out what type of exemption you may qualify to receive.

Alabama Estate and Inheritance Tax

Alabama does not impose inheritance or gift taxes. Since federal legislation was passed to eliminate the estate tax, these taxes are no longer valid as of December 31, 2004. If a decedent passed away on or after this date, an estate tax return does not need to be filed with the Alabama DOR.

Before this law was repealed, executors were responsible for completing affidavits of estate tax, estate tax waivers, or estate tax returns. These documents informed the state on the date of the decedent’s death, the value of the estate, and the ownership that was being transferred. These documents are no longer required for the transfer of ownership.

Filing Taxes in Alabama

Your Alabama income tax return is due on April 15. However, the state offers an automatic six-month filing extension. You don’t need to submit an extension form but you must submit your tax return by October 15. As you prepare to file your taxes, keep in mind, you’ll need to choose which form to complete.

Form 40 (Individual Income Tax Return) is a long-form individual tax return. If you’re making a payment, mail the completed form to:

Alabama Department of Revenue
P. O. Box 2401
Montgomery, AL 36140-0001.

If you’re just sending in the return, mail it to:

Alabama Department of Revenue
P.O. Box 327469
Montgomery, AL 36132-7469.

If you’re receiving a refund, mail the form to:

Alabama Department of Revenue
P.O. Box 154
Montgomery, AL 36135-0001.

Form 40A is the short form version of Form 40 and can be completed and mailed to the same corresponding addresses upon completion. You should only complete Form 40NR if you’re a nonresident who earned income in the state. Upon completion, it can be mailed to the same corresponding mailing addresses, depending on whether you’ll receive a refund, have enclosed payment, or are just sending the return.

If you need assistance when filing or if you owe taxes that you can’t afford to pay, contact the Taxpayers Service Center for assistance and information on payment plans. You can track your tax refund by visiting the My Alabama Taxes (MAT) site and entering your Social Security number, the tax year, and your refund amount.

My Alabama Taxes

By creating an account with MAT, you can electronically file your tax return for free. Since the site requests personal and confidential information, it’s important to ensure you type the correct URL before proceeding. Once you create an account, you can check the status of your tax return and refund or view tax returns from previous years.

Reviewing the Alabama tax laws and how to file taxes with the state ensures you pay the correct amount of taxes on time. When you understand the tax regulations that apply to you, it’s easier to avoid mistakes and penalty charges.

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