Overview of Alabama Taxes
Alabama has income taxes that range from 2% up to 5%, slightly below the national average. The Heart of Dixie has a progressive income tax rate, in which the amount of tax withheld depends on which of its three tax brackets you fall under. This generally means that you’ll be at a higher rate if you earn more. Depending on which county you live in, local income taxes may also be withheld.
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Alabama Paycheck Calculator
Alabama Paycheck Quick Facts
- State income tax rate: 2% - 5%
- Median household income: $59,609 (U.S. Census Bureau)
- Number of cities with local income taxes: 25
How Your Alabama Paycheck Works
Whether you’re a Huntsville Havoc or a Birmingham Barons fan, you’re going to get taxes taken out of your paycheck. Your employer withholds FICA and federal income taxes from your paychecks. These taxes go to the IRS, which in turn sends them to Medicare and Social Security and applies them toward your annual income taxes.
Your employer also withholds Alabama state income tax. Depending on where you live in the state, local taxes may also come out of your paycheck. The amount your employer withholds will depend on the information you provide on your W-4 tax form. You need to fill out a new W-4 every time you start a new job and you may want or need to fill out a new one after big life changes, such as marriage or divorce.
One factor that may affect how much tax is withheld from your paycheck is your marital status. Because your filing status affects what income tax bracket you are in, it also impacts how much comes out of your paycheck for income taxes.
Your paycheck size will also differ depending on any contributions you choose to make. Say, for example, your employer offers health benefits. If you elect to contribute money toward a flexible spending account or a health savings plan, it will be deducted from your paycheck. The same is true if you want to contribute to a retirement plan like a 401(k) plan. This money will be taken out before your earnings hit your bank account; because they’re considered pre-tax contributions, your total taxable income (and thus the taxes you pay) will go down. (A notable exception is contributions to a Roth 401(k), which come out after income tax is applied).
If your filing status is single, married filing separately or head of household, you will get taxed 2% on your first $500 of taxable income, 4% on earnings up to $3,000 and 5% on income over that amount. If you’re married and filing jointly, that 2% of taxable income goes up to the first $1,000, 4% on up to $6,000 and 5% over that.
Alabamians working in some cities and counties have to pay local income taxes, called occupational taxes, of between 0.5% and 2%. These local taxes apply whether or not you’re a resident in those areas.
A financial advisor can help you understand how taxes fit into your overall financial goals. SmartAsset’s free tool you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Depending on where you live in the Yellowhammer State, you’re also going to be paying municipal occupational taxes. These apply to your gross wages -- not your taxable income -- and are withheld from your paycheck.
Overall, Alabama has one of the lowest tax burdens in the U.S. If the combination of low property taxes and low income taxes has you considering a move to the Yellowhammer State, take a look at our mortgage guide for details on rates and getting a mortgage in Alabama.
How You Can Affect Your Alabama Paycheck
The simplest way to change how much tax is withheld from your paycheck is to ask your employer to withhold a specific dollar amount from each of your paychecks. There is a line on the W-4 that allows you to specify additional withholding. Say, for example, you want to withhold $50 from each paycheck. Simply write that amount on the correct line on the W-4.
Finally, making pre-tax contributions can affect your paycheck. If you can afford it, consider sheltering more money in pre-tax retirement accounts such as your 401(k) or 403(b). Since that money comes out of your wages before income taxes are removed, it lowers your taxable income and can help save you money. The same goes for putting money into a Health Savings Account or a Flexible Spending Account. Just remember that you have to actually use any money you put into an HSA or FSA or you will lose it, as those accounts don’t roll over from year to year.
