Taxes in Alabama come from three main sources: a graduated state income tax with rates of 2%, 4%, and 5%; a 4% state sales tax that rises once city and county add-ons apply; and property taxes that sit among the lowest in the country because the state taxes only a small fraction of a property’s market value. Alabama also lets you deduct the federal income taxes you paid from your state taxable income, which pulls the effective burden down further. There is no state estate or inheritance tax.
Income Tax Rates
Alabama runs personal income through three brackets. For single filers, head-of-family filers, and married individuals filing separately:
- 2% on the first $500 of taxable income
- 4% on taxable income between $500 and $3,000
- 5% on taxable income above $3,000
Married couples filing jointly get doubled thresholds: 2% on the first $1,000, 4% from $1,000 to $6,000, and 5% above $6,000.1Alabama Legislature. Alabama Code 40-18-5 – Tax on Individuals Because those cutoffs are low, most working Alabamians with moderate or higher earnings pay 5% on the bulk of their taxable income.
What You Can Subtract Before the Brackets Apply
Federal Income Tax Deduction
Alabama is one of a handful of states that lets you deduct federal income taxes paid or accrued during the year from your Alabama taxable income.2Legal Information Institute. Alabama Admin Code 810-3-35-.01 – Federal Income Tax Deduction If your federal bill is large, this deduction meaningfully lowers what Alabama takes. It applies to both individuals and corporations.
Standard Deduction
The standard deduction is not a fixed dollar figure. It slides with your adjusted gross income and shrinks as AGI rises. Single filers can claim between $2,500 and $4,250. Married couples filing jointly can claim between $5,000 and $8,500. Lower AGI gets you the top of the range; higher AGI brings you down to the floor.
Personal and Dependent Exemptions
On top of the standard deduction, you subtract personal exemptions. Single filers and married individuals filing separately each get a $1,500 personal exemption. Head-of-family filers and joint filers get $3,000. Each qualifying dependent adds $300.3Alabama Administrative Code. Alabama Admin Code 810-3-19-.02 – Personal Exemptions and Credit for Dependents
Retirement Income
Alabama treats most retirement income gently. Social Security benefits are fully exempt from state income tax. So are most government and public-sector pensions: military retirement pay, federal civil service retirement, Alabama state employee and teacher retirement, railroad retirement, and VA disability payments. Payments from a defined benefit retirement plan also qualify, as does retirement compensation that eligible firefighters or peace officers receive from an Alabama fire or police retirement system.4Alabama Department of Revenue. Income Exempt from Alabama Income Taxation
Distributions from 401(k) plans and traditional IRAs are generally taxable and run through the standard brackets.
Sales Tax
The state sales tax rate is 4% on most retail goods. Groceries are taxed at a reduced state rate of 2% as of September 2025.5Alabama Department of Revenue. State Sales and Use Tax Rates Cities and counties stack their own sales taxes on top, often pushing the combined rate into the 8% to 10% range depending on where you shop. The local portion on groceries also varies by jurisdiction.
Consumer Use Tax
If you buy from an out-of-state seller who doesn’t collect Alabama sales tax, you owe consumer use tax at the same 4% state rate, and many cities and counties layer on a local use tax.5Alabama Department of Revenue. State Sales and Use Tax Rates Local consumer use tax returns are due monthly by the 20th of the following month, though smaller filers can request quarterly, biannual, or annual filing.6Alabama Department of Revenue. Consumers Use Tax Many large online retailers now collect Alabama tax through the Simplified Sellers Use Tax program at a flat 8%, which covers both the state and local portions.7Alabama Department of Revenue. Simplified Sellers Use Tax
Sales Tax Holidays
Alabama holds two annual sales tax holidays that suspend the state’s share of the sales tax on qualifying items. Local jurisdictions can choose whether to participate.
The Severe Weather Preparedness holiday falls on a weekend in late February. In 2026 it runs February 20–22. Eligible items priced at $94 or less include batteries, flashlights, weather radios, first-aid kits, tarps, fire extinguishers, and smoke detectors. Portable generators and power cords qualify if priced at $1,564 or less.8Alabama Department of Revenue. 2026 Severe Weather Preparedness Sales Tax Holiday Fact Sheet
The Back-to-School holiday takes place on the third full weekend of July, running from 12:01 a.m. Friday through midnight Sunday. For 2026, the per-item price caps are $156 for clothing, $1,173 for computers, software, and school computer supplies, $78 for school supplies, art supplies, and instructional materials, and $47 for books. Each threshold applies to the individual item, not the whole purchase.9Alabama Administrative Code. Alabama Admin Code 810-6-3-.65 – Sales Tax Holiday for Back-to-School
Property Tax
Property tax has two moving parts: an assessment ratio set by state law and a millage rate set locally. One mill equals $1 of tax per $1,000 of assessed value. Alabama uses four property classes:
- Class I (30%): utility-owned property used in the business of the utility
- Class II (20%): all property not classified elsewhere, including commercial and industrial real estate
- Class III (10%): owner-occupied residential homes, farmland, and other agricultural property
- Class IV (15%): private passenger vehicles owned and used for personal purposes
Homes fall under Class III, so only 10% of market value is actually taxed.10Alabama Legislature. Alabama Code 40-8-1 – Classification of Property A $200,000 home has an assessed value of $20,000. At a 50-mill local rate, the annual bill works out to $1,000.
Homestead Exemptions
Several homestead exemptions reduce or eliminate property tax on a primary residence, keyed to age, disability, and income:
- H-1 (under 65, not disabled): exempts $4,000 of assessed value from state taxes and $2,000 from county taxes.
- H-2 (age 65+ with income under $12,000, or permanently disabled): full exemption from the state portion, plus $5,000 of assessed value exempted from county taxes, including school district taxes.
- H-3 (age 65+ with combined federal taxable income under $12,000): full exemption from all state and local property taxes.
- H-3 (permanently and totally disabled, any age): full exemption from all property taxes with no income limit.
The two H-3 exemptions wipe out the entire bill for those who qualify.11Alabama Department of Revenue. Homestead Exemptions
Vehicle Ad Valorem Tax
Alabama taxes personal vehicles as property. Private passenger cars, SUVs, vans, and pickups weighing 8,000 pounds or less are Class IV at 15% of market value. Commercial vehicles and motorcycles use the Class II rate of 20%, and utility-owned vehicles use Class I at 30%.12Alabama Department of Revenue. Vehicle Valuation The assessed value is multiplied by local millage rates and paid at registration. Because the state uses depreciated market values, the tax shrinks as a vehicle ages.
Business Taxes
Corporate Income Tax
Corporate income earned in Alabama is taxed at a flat 6.5% of net income.13Alabama Department of Revenue. Corporate Income Filing Requirements Corporations get the same federal income tax deduction individuals do, which lowers the effective rate. Any corporation doing business in Alabama, earning income from Alabama sources, or licensed to operate in the state must file.
Business Privilege Tax
Nearly every business entity — corporations, LLCs, business trusts, and similar entities — owes an annual privilege tax just for operating in or being organized under Alabama law. The rate is applied to Alabama net worth and scales with the entity’s taxable income:
- Under $1 in taxable income: $0.25 per $1,000 of net worth
- $1 to $199,999: $1.00 per $1,000
- $200,000 to $499,999: $1.25 per $1,000
- $500,000 to $2,499,999: $1.50 per $1,000
- $2,500,000 and above: $1.75 per $1,000
The minimum tax is $50 for most entities.14Alabama Legislature. Alabama Code 40-14A-22 – Levy and Amount of Tax Corporations also file an annual report with the Secretary of State between January 1 and March 15 each year, which carries a $10 processing fee. Failing to pay the privilege tax can cost an entity its authority to do business in the state.15Alabama Department of Revenue. Business Privilege Tax
Local Occupational Taxes
Some Alabama municipalities tax wages earned within city limits. These occupational taxes are a percentage of gross earnings and function as a local payroll tax. Not every city levies one, so whether you pay depends on where you work. When your employer sits inside a city that imposes one, the tax is typically withheld from your paycheck.
Estate and Inheritance Tax
Alabama does not impose a state estate tax or inheritance tax. The old state estate tax was tied to a federal credit for state death taxes, and when federal law eliminated that credit for deaths after December 31, 2004, Alabama’s estate tax effectively went to zero. Estates with a date of death after that cutoff are not required to file an Alabama estate tax return.16Alabama Department of Revenue. Alabama Fiduciary, Estate, and Inheritance Tax Federal estate tax rules still apply to large estates.
Filing Deadline and Late Penalties
Alabama individual income tax returns are due April 15, matching the federal deadline.17Alabama Department of Revenue. Alabama Income Tax Filing Season in Full Swing File late and the penalty is the greater of 10% of the tax due or $50. File on time but pay late and you owe a separate 10% penalty on the unpaid amount. Interest accrues on any balance due.18Alabama Department of Revenue. Due Date Calendar for Taxes