ALABAMA
Return to Retiree Tax Map
NICKNAME
The Yellowhammer State
BOTTOM LINE: TAX-FRIENDLY
Alabama is very tax-friendly to retirees. Most retirement income, including Social Security, is exempt from state income taxes. Homeowners 65 and older don't pay state property taxes, but some cities and counties apply their own property levies.
STATE SALES TAX
4% statewide. But the rate can go as high as 10%, depending on city and county taxes. Alabama is one of the few states that does not exempt food from sales taxes, but it does exempt prescription drugs.
INCOME-TAX RANGE
Low: 2% (up to $1,000 of taxable income for married joint filers, up to $500 for all others)
High: 5% (on taxable income of more than $6,000 for married joint filers, on taxable income of more than $3,000 for all others)
SOCIAL SECURITY
Benefits are not taxed.
EXEMPTIONS FOR OTHER RETIREMENT INCOME
Military, civil-service, state and local government, and qualified private pensions are exempt. Out-of-state government pensions are tax-exempt if they are defined-benefit plans. Distributions from IRAs and employer-based defined-contribution plans, such as 401(k)s and 403(b) plans, are taxable.
PROPERTY TAXES
Alabama's state property tax rate is 0.65%. Each city and county may levy its own property tax rate. In calculating the property tax bill, the assessed value of residential property is 10% of the property’s appraised value.
Tax breaks for seniors: Homeowners 65 and older are exempt from all state property taxes. Some cities assess separate property taxes. Seniors age 65 and older with taxable income of $12,000 or less may qualify for a county homestead exemption and a county and city principal-residence exemption with no maximum amount. Seniors age 65 and older with taxable income of more than $12,000 may qualify for a county homestead exemption worth no more than $2,000.
INHERITANCE AND ESTATE TAXES
There is no inheritance tax and no estate tax.
Visit RetirementLiving.com for a complete rundown of taxes in Alabama.
Printer-friendly version
