Kate Schubel
Alabama State Tax: Overview
Alabama taxpayers can pay some pretty low taxes. After all, the Cotton State has one of the nation's lowest property tax rates, no state death taxes, and workers with higher earnings can expect a tolerable top income tax rate compared to other states.
But while Alabama has a generally low statewide sales tax, localities can tack on hefty tax rates of their own. When you factor in those local taxes, Alabama has one of the highest sales tax rates in the U.S.
However, of the 41 states that impose an income tax, Alabama is the only one to exempt overtime pay.
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Read on for the full gamut of Alabama state taxes.
[Data for this state tax guide was gathered from a number of sources, including the Census Bureau, the Tax Foundation, the state’s government website, and the Sales Tax Handbook. Property taxes are cited as a rate percentage rather than the assessed value.]
Alabama state income tax
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. However, an Alabama overtime law enacted last year exempts overtime pay for hourly workers. Some Alabama municipalities impose additional taxes on salaries and wages.
Alabama tax on retirement benefits: Alabama does not tax Social Security retirement benefits. Income from the 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.
Note: The first $6,000 of retirement income received by anyone 65 or older is exempt from Alabama income tax.
Alabama Income Tax Range: Single filers, head of household and married filing separately
Up to $500 | 2% |
$501 to $3,000 | 4% |
More than $3,000 | 5% |
Alabama Income Tax Range: Married filing jointly
Up to $1,000 | 2% |
$1,001 to $6,000 | 4% |
More than $6,000 | 5% |
Alabama sales tax
Alabama has a 4% statewide sales tax. Localities can add as much as 8% to that, and the average combined rate is 9.427%, according to the Tax Foundation. Alabama is one of the states that taxes groceries, but prescription drugs are tax-exempt.
How much are property taxes in Alabama?
In Alabama, the average effective property tax rate is 0.36%, 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.
(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.
Tax on gasoline: $0.29 per gallon (does not include local taxes)
Tax on diesel: $0.30 per gallon (does not include local taxes)
Alabama taxes on alcohol and tobacco
Cigarettes | $0.68 per pack |
Snuff | $0.02 to $0.08 per ounce |
Cigars | $0.04 to $0.405 per 10 cigars |
Beer | $0.53 per gallon |
Wine | $1.70 per gallon |
Liquor | $21.69 (per Tax Foundation) |
Marijuana | Not permitted for recreational use |
Alabama estate and inheritance taxes
There is no estate or inheritance tax in Alabama.
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