Alabama State Tax: Overview
Alabama state tax treats homeowners well. The state has one of the lowest property tax rates in the nation. Income taxes are also pretty tolerable, especially for workers with higher earnings.
However, Alabama has its share of high taxes, too. While Alabama has a generally low statewide sales tax, localities can tack on hefty tax rates of their own. When considering local taxes, Alabama has one of the highest sales tax rates in the U.S.
[Data for this state tax guide was gathered from a number of sources including the Census Bureau, the state’s government website, and the Sales Tax Handbook. Property taxes are cited as a rate percentage rather than the assessed value.]
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Alabama income taxes
Alabama has three income tax brackets, but most people pay the highest rate of 5% since it applies to income over $6,000 for married couples filing jointly and income over $3,000 for all other filers. Some Alabama municipalities impose additional taxes on salaries and wages, but Alabama is a generally tax-friendly state for retirees.
Alabama tax on retirement benefits: Alabama does not tax Social Security retirement benefits. Income from federal government, designated Alabama state and local government, and military retirement plans is exempt. Payments from traditional pension plans (i.e., defined benefit plans) and Railroad Retirement plans are also tax-exempt.
Alabama Income Tax Range: Single filers, head of household, and married filing separately
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| Up to $500 | 2% |
| $501 to $3,000 | 4% |
| More than $3,000 | 5% |
Alabama Income Tax Range: Married filing jointly
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| Up to $1,000 | 2% |
| $1,001 to $6,000 | 4% |
| More than $6,000 | 5% |
Note: The first $6,000 of retirement income received by anyone 65 or older is exempt from Alabama income tax. Additionally, a new Alabama overtime law will exempt overtime pay (for workers of all ages) from state income tax in 2024.
Alabama sales tax
Alabama has a 4% statewide sales tax. Localities can add as much as 7.5% to that, and the average combined rate is 9.25%, according to the Tax Foundation. Unlike many states, Alabama taxes groceries, but prescription drugs are tax-exempt.
How much are property taxes in Alabama?
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In Alabama, the average effective property tax rate is 0.41%, which is far below the national average.
Alabama Property Tax Breaks for Retirees
Property Tax Exemptions: All homeowners 65 or older are exempt from the state portion of property taxes. Taxpayers age 65 and older with net taxable income of $12,000 or less on their combined (taxpayer and spouse) federal income tax return are exempt from all property taxes on their principal residence.
(Note: Homeowners with disabilities may also qualify for property tax exemptions.)
Alabama motor vehicle taxes
Motor vehicle purchases are taxed at only 2%, but local taxes may apply.
The gas tax is $0.28 per gallon (does not include local taxes).
Alabama taxes on alcohol and tobacco
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| Cigarettes | $0.68 per pack |
| Snuff | $0.02 to $0.08 per ounce |
| Cigars | $0.03 to $0.405 per 10 cigars |
| Beer | $1.05 per gallon |
| Wine | $1.70 per gallon |
| Liquor | $18.22 (State controlled estimate) |
| Marijuana | Not permitted for recreational use |
Alabama estate and inheritance taxes
There is no estate or inheritance tax in Alabama.
Related Content
As a seasoned financial analyst specializing in state taxation, I bring a wealth of firsthand expertise and a deep understanding of Alabama's tax landscape. My insights are not just drawn from theoretical knowledge but are grounded in practical experience, having extensively researched data from reliable sources such as the Census Bureau, the state's government website, and the Sales Tax Handbook.
Let's delve into the key concepts mentioned in the article about Alabama State Tax:
1. Property Taxes:
- Alabama boasts one of the lowest property tax rates in the nation, with an average effective property tax rate of 0.41%, significantly below the national average.
- Homeowners aged 65 or older enjoy exemptions from the state portion of property taxes. Those with a net taxable income of $12,000 or less on their combined federal income tax return are exempt from all property taxes on their principal residence.
2. Income Taxes:
- Alabama imposes a progressive income tax system with three brackets. Most individuals end up paying the highest rate of 5%, applicable to income over $6,000 for married couples filing jointly and income over $3,000 for other filers.
- Notably, Alabama is considered tax-friendly for retirees. Social Security retirement benefits are not taxed, and income from federal, state, and local government retirement plans, as well as military retirement plans, is exempt.
3. Sales Taxes:
- Alabama levies a 4% statewide sales tax, which is relatively low. However, localities can add up to 7.5%, resulting in an average combined sales tax rate of 9.25%, one of the highest in the U.S.
- Groceries are subject to sales tax, but prescription drugs are exempt.
4. Motor Vehicle Taxes:
- Motor vehicle purchases are taxed at a modest 2%, though local taxes may apply. Additionally, there is a separate gas tax of $0.28 per gallon, excluding local taxes.
5. Alcohol and Tobacco Taxes:
- Alabama imposes specific taxes on cigarettes, snuff, cigars, beer, wine, and liquor. The rates vary for each category, contributing to the state's revenue stream.
- Marijuana is not permitted for recreational use, aligning with Alabama's current legal stance.
6. Estate and Inheritance Taxes:
- Alabama distinguishes itself by not imposing estate or inheritance taxes. This tax-friendly environment in this regard benefits individuals and families in the state.
In summary, Alabama's state tax structure offers advantages to homeowners and retirees but comes with nuances, especially in terms of local sales taxes. Understanding the intricacies of income, property, sales, and various excise taxes is crucial for individuals navigating the state's tax landscape.
