Alabama State Tax Guide

Alabama State Tax: Overview

Alabama state tax treats is high in some areas and low in others. 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, 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.

In the News: A new Alabama overtime law allows hourly employees who work overtime to keep more of their earnings. While the overtime income tax exemption benefit is temporary (as of now), it will provide some financial relief for Alabama employees who work overtime. 

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Of the 41 states that impose an income tax, Alabama is the only one to exempt overtime pay.

For more information, see New Alabama Overtime Law Benefits Hourly Employees.

[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.] 

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 this 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 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

Alabama Income Tax Range: Married filing jointly

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 9.289%, according to the Tax Foundation. Alabama is one of the states that tax groceries, but prescription drugs are tax-exempt.

How much are property taxes in Alabama?

In Alabama, the average effective property tax rate is 0.39%, 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

Alabama estate and inheritance taxes

There is no estate or inheritance tax in Alabama.

Related Content

• States That Tax Groceries
• Alabama Overtime Law: What Hourly Workers Should Know
• 10 States With the Highest Sales Taxes