Alabama · the numbers
Alabama figures at a glance for 2026
The Alabama numbers for the 2026 return in one place: the three brackets, the standard deduction chart that shrinks with income, the personal and dependent exemptions, the retirement exclusion, the deductions Alabama allows that the federal return does not, the estimated-payment rules, the dates, and the short list of what changed from 2025. For anyone who files here, and for anyone checking a preparer’s work.
By Charles Trautman, EA, editor
Need to Know Tax · written from Alabama Department of Revenue sources, November 3, 2026; updated November 12, 2026 after the election · not yet reviewed by an Alabama practitioner
Nearly every Alabama figure for 2026 is the 2025 figure. Alabama does not index its income tax for inflation, and the 2026 Legislature passed one change for individuals: a deduction of up to $1,000 for overtime pay. The Department of Revenue had not published the 2026 forms and standard deduction chart when this was written, so the figures below are the 2025 figures where they are marked, carried forward because the law behind them is unchanged. The one caution is the calendar: the Legislature meets from January through May 2027, before the return is due, and it has changed the rules retroactively before.
The core figures
| Item | 2025 | 2026 |
|---|---|---|
| Starting point | Alabama’s own gross income | Same; not federal AGI |
| Rates, single / head of family / married filing separately | 2% to $500; 4% to $3,000; 5% above | Same |
| Rates, married filing jointly | 2% to $1,000; 4% to $6,000; 5% above | Same |
| Standard deduction, married filing jointly (maximum / floor) | $8,500 / $5,000 | $8,500 / $5,000 |
| Standard deduction, single (maximum / floor) | $3,000 / $2,500 | $3,000 / $2,500 |
| Standard deduction, head of family (maximum / floor) | $5,200 / $2,500 | $5,200 / $2,500 |
| Standard deduction, married filing separately (maximum / floor) | $4,250 / $2,500 | $4,250 / $2,500 |
| Personal exemption, single or married filing separately | $1,500 | $1,500 |
| Personal exemption, married filing jointly or head of family | $3,000 | $3,000 |
| Dependent exemption, Alabama AGI $50,000 or less / $50,001–$100,000 / over $100,000 | $1,000 / $500 / $300 | $1,000 / $500 / $300 |
| Federal income tax deduction (Form 40 line 12) | Federal tax owed for the year, no cap | Same |
| Retirement income exclusion, age 65+, per person (Schedule RS) | $6,000 | $6,000 |
| Overtime deduction, per taxpayer (HB527) | None (full exemption through June 30, 2025) | Up to $1,000, through 2028 |
| Local income tax | None; city occupational taxes of 0.5%–2% withheld by employers in about 25 cities (verify current list) | Same |
The 5% rate applies to all taxable income above $3,000 single or $6,000 joint, so the lower two brackets together are worth at most $40 single or $80 joint compared with a flat 5%.
The standard deduction chart
Alabama’s standard deduction depends on filing status and on Alabama adjusted gross income, Form 40 line 10. It is at its maximum at low incomes and steps down to a floor. The figures are from the 2025 chart; the 2026 chart is to come, and the statute has not changed.
| Filing status | Maximum | Full amount up to AGI of | Falls by | Floor | Floor from AGI of |
|---|---|---|---|---|---|
| Married filing jointly | $8,500 | $25,999 | $175 per $500 of AGI | $5,000 | $35,500 |
| Head of family | $5,200 | $25,999 | per the chart | $2,500 | $35,500 |
| Single | $3,000 | $25,999 | $25 per $500 of AGI | $2,500 | $35,500 (check against the 2026 chart) |
| Married filing separately | $4,250 | $12,999 | per the chart | $2,500 | $17,750 |
You may itemize on Alabama Schedule A instead, whether or not you itemized federally. With a standard deduction this small, many Alabama filers who take the federal standard deduction should.
Deductions Alabama allows that the federal return does not
| Item | Figure | Where |
|---|---|---|
| Federal income tax owed for the year | The full amount, after credits; not withholding | Form 40 line 12, everyone |
| Overtime (qualified overtime compensation, federal §225 definition) | Up to $1,000 per taxpayer, 2026–2028 | To come on the 2026 form; allowed to non-itemizers |
| CollegeCounts 529 contributions | $5,000 per taxpayer; $10,000 joint when both contribute | Form 40 page 2, adjustments |
| First Time and Second Chance Home Buyer Savings Account deposits | $5,000 single / $10,000 joint | Schedule HBC |
| Adoption expenses (medical and legal) | Reasonable expenses; agency fees excluded (verify) | Form 40 page 2, adjustments |
| Medical and dental expenses | Above 4% of Alabama AGI (federal floor is 7.5%) | Alabama Schedule A |
| FICA and self-employment tax | Deductible as taxes paid, under the $40,000 SALT cap | Alabama Schedule A |
| Job and miscellaneous expenses | Above 2% of Alabama AGI; Alabama never repealed these | Alabama Schedule A |
| Gambling losses | To the extent of winnings; no federal 90% haircut | Alabama Schedule A |
| Vehicle loan interest | Qualifying new vehicles bought 2025–2028, federal phase-out | Alabama Schedule A line 11 |
Not allowed in Alabama: the federal tips deduction, the federal overtime deduction, the $6,000 senior deduction, the QBI deduction, the non-itemizer charitable deduction, and any deduction for Alabama income tax itself.
Income Alabama does not tax
| Income | Alabama treatment |
|---|---|
| Social Security and Railroad Retirement | Exempt at any age and any income |
| Defined-benefit pensions: military, federal civil service, TVA, Retirement Systems of Alabama, private employer plans | Exempt at any age |
| IRA, 401(k), 403(b), 457 and other defined-contribution withdrawals | Taxable; first $6,000 per person excluded at 65 or older |
| Unemployment compensation | Exempt |
| State income tax refunds | Exempt |
| Interest on U.S. obligations and on Alabama state and local bonds | Exempt |
Credits
Alabama has no earned income credit, no child tax credit, no dependent care credit, no renter or property-tax credit, and no refundable credit for individuals. What exists: the credit for income tax paid to another state (Schedule CR, residents only, limited to the Alabama tax on the same income), the business credits on Schedule OC, and the Alabama Accountability Act credit for donations to scholarship-granting organizations (verify current terms). Families get the dependent exemption and head-of-family status; see Credits and breaks for Alabama families.
Worked example: reading the tables for one couple
Married filing jointly, both under 65, no dependents, wages of $90,000 and nothing else. They take the standard deduction on both returns.
| Federal taxable income: $90,000 less the $32,200 standard deduction | $57,800 |
| Federal income tax (10% and 12% brackets) | $6,440 |
| Alabama AGI (Form 40 line 10) | $90,000 |
| Alabama standard deduction: AGI is over $35,500, so the floor | −$5,000 |
| Federal income tax deduction (line 12) | −$6,440 |
| Personal exemption, joint | −$3,000 |
| Alabama taxable income | $75,560 |
| Tax: 2% of $1,000 + 4% of $5,000 + 5% of $69,560 | $20 + $200 + $3,478 |
| Alabama tax | $3,698 |
| Effective rate on $90,000 | 4.1% |
The federal tax deduction is what pulls the rate under 5%. Had the couple itemized in Alabama with $4,000 of property tax, $6,900 of FICA and $3,000 of charitable gifts, Alabama Schedule A would come to $13,450 after the 0.5% charitable floor, against a $5,000 standard deduction, cutting Alabama tax by $423. Itemizing federally would not have been worth it; itemizing in Alabama was.
Estimated payments and dates
| Item | Figure |
|---|---|
| Estimated payments required when Alabama tax after withholding and credits will be at least | $500 |
| Safe harbor | Withholding and credits at least 90% of this year’s tax or 100% of last year’s; 110% of last year’s if last year’s Alabama AGI was over $150,000 ($75,000 married filing separately) |
| 2026 estimated payment dates | April 15, June 15, September 15, 2026; January 15, 2027 |
| Return and payment due | April 15, 2027 |
| Extension | Automatic to October 15, 2027; no form; payment not extended (pay with Form 40V) |
| Late-payment penalty | 1% per month or part of a month, maximum 25% |
| Late-filing penalty | Greater of 10% of tax due or $50 |
| Interest | At the IRS rate, from April 15 |
| Underpayment penalty form | Form 2210AL |
Beyond the income tax
| Item | 2026 |
|---|---|
| Estate, inheritance and gift tax | None |
| State sales tax, general | 4%, plus city and county rates; combined rates of 9%–11% are common |
| State sales tax, groceries | 2% since September 1, 2025; suspended May 1–June 30, 2026 |
| Owner-occupied home assessment ratio / state millage | 10% of market value / 6.5 mills |
| Homestead exemption, under 65 (H-1) | $4,000 of assessed value from state tax, $2,000 from county tax |
| Homestead exemption, 65+ (H-2, H-3, H-4) | All state tax; county relief keyed to a $12,000 income line that is not indexed; full exemption at $12,000 or less of federal taxable income or permanent disability (verify the income test with the county) |
| Reciprocal states for wages | None |
What changed from 2025
- Overtime deduction, up to $1,000. New for 2026 through 2028 under HB527, signed April 16, 2026. Replaces nothing on the 2025 return; the full overtime exemption had already ended June 30, 2025.
- Charitable floor. Alabama itemizers lose the first 0.5% of AGI of charitable gifts from 2026, following the federal change.
- Dependent-care FSA. Up to $7,500 excluded, following federal law.
- Grocery tax. 2% all year except May 1 to June 30, when the state rate was zero.
- Everything else. Rates, standard deduction, exemptions, the $6,000 exclusion, the 529 deduction and the estimated-payment threshold are unchanged. HB388 ($12,000 exclusion) and HB389 (larger standard deduction) died in the 2025 Senate and were not revived.
Behind the scenes: why nothing moves
Alabama’s brackets were set in 1933 and nothing in the income tax is indexed for inflation. A $3,000 bracket top meant something in 1933; today it means a flat 5% tax with a rounding error at the bottom. The standard deduction, the dependent exemption and the $6,000 retirement exclusion (Act 2022-294) move only when a specific bill passes, so each step needs a new bill. The two 2025 bills that would have taken the next steps passed the House unanimously and ran out of time in the Senate, which is the usual way an Alabama tax bill dies.
What to bring
- Last year’s Form 40, since almost every figure should match
- Your completed federal return, for the federal income tax deduction
- All 1099-Rs, with the plan type for each: defined-benefit pension or defined-contribution account
- Dates of birth, for the $6,000 exclusion at 65
- For Alabama itemizers: property tax, mortgage interest and insurance, car-loan interest, medical bills, charitable receipts, and W-2s for the FICA figure
- CollegeCounts and home-buyer savings account statements
- Estimated payment confirmations, with dates
Questions people ask
What is the Alabama income tax rate for 2026?
2% on the first $500 of taxable income, 4% on the next $2,500 and 5% on everything over $3,000; those lines double on a joint return. In practice nearly all income is taxed at 5%, and the deduction for federal income tax brings the effective rate to roughly 3% to 4.5% depending on your federal bracket.
What is the Alabama standard deduction for 2026?
It depends on income. Married filing jointly it is $8,500 at Alabama AGI under $26,000, falling to $5,000 at $35,500 and above; single it is $3,000 under $13,000, falling to $2,500 at $17,750 and above. Those are the 2025 chart figures; the 2026 chart was not yet published, and the law has not changed.
Is the $6,000 retirement exclusion still $6,000?
Yes, per person 65 or older, against taxable retirement income such as IRA and 401(k) withdrawals. A bill to double it did not pass.
Does Alabama have an earned income credit or child tax credit?
No. Each dependent earns an exemption of $1,000, $500 or $300 depending on Alabama AGI, worth $50 at most.
When do I have to make Alabama estimated payments?
When you expect to owe at least $500 after withholding and credits, unless your withholding covers 90% of this year’s tax or 100% of last year’s (110% if last year’s Alabama AGI was over $150,000). The dates are April 15, June 15, September 15 and January 15.
Does Alabama have an estate tax?
No. No estate tax, no inheritance tax and no gift tax.
Same numbers as last year, plus $1,000 for overtime
Check the standard deduction chart against your Alabama AGI, deduct your federal tax, and ask whether Alabama Schedule A beats a $5,000 or $2,500 standard deduction before you settle for it.
Written by Charles Trautman, EA, editor · Need to Know Tax, Lone Tree, Colorado
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Forms and official pages named in this article
Sources and where to check
- Alabama Department of Revenue: Individual Income Tax (rates, exemptions, due dates)
- Alabama Department of Revenue: One Big Beautiful Bill Act analysis (October 31, 2025, updated November 10, 2025)
- Office of the Governor: HB527 signed (April 16, 2026)
- 2025 Form 40NR instruction booklet (Schedule A rules, 4% medical floor, FICA)