Certain types of income are exempt from Alabama state income tax under Alabama law. Income that qualifies for an exemption is generally not included in Alabama taxable income. Taxpayers receiving exempt retirement income must complete Schedule RS and provide the applicable exemption code and supporting information when required.
Exempt Income Categories
- Retirement Distributions: Certain retirement benefits, pensions, annuities, and other qualifying retirement distributions are exempt from Alabama income tax if they meet the requirements established under Alabama law. Taxpayers claiming an exemption for retirement income reported on Form 1099-R must complete Schedule RS and indicate the appropriate exemption reason.
- Social Security Benefits: Social Security benefits are exempt from Alabama income tax.
- Railroad Retirement Benefits: Railroad Retirement benefits that are exempt from federal income tax are also exempt from Alabama income tax.
- Other Exempt Income: Additional types of income specifically exempted by Alabama law may be excluded from Alabama taxable income. Taxpayers should refer to the Form 40 and Form 40NR instructions for applicable exemptions and reporting requirements.
Important Notes on Filing
- Residents of Alabama are generally taxed on income from all sources unless the income is specifically exempt under Alabama law.
- Nonresidents of Alabama are generally taxed only on income derived from Alabama sources and must file Form 40NR if they meet Alabama filing requirements.
- Part-year residents generally file Form 40 and report income earned while they were Alabama residents, subject to Alabama residency and allocation rules.
- Taxpayers claiming exempt retirement distributions reported on Form 1099-R should report the distribution and any Alabama withholding on Schedule RS as instructed.
- Not all retirement distributions qualify for an exemption.
Source:
Form 40NR.pdf
Schedule RS.pdf
Form 40.pdf
Disclaimer: Always verify with the most current Federal or State Department of Revenue Forms and Instructions. Tax laws and regulations may change, and individual circumstances may require professional advice from a CPA or tax attorney.