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.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
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
| Up to $500 | 2% |
| $501 to $3,000 | 4% |
| More than $3,000 | 5% |
Alabama Income Tax Range: Married filing jointly
| Up to $1,000 | 2% |
| $1,001 to $6,000 | 4% |
| More than $6,000 | 5% |
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
| Cigarettes | $0.68 per pack |
| Snuff | $0.02 to $0.08 per ounce |
| Cigars | $0.03 to $0.405 per 10 cigars |
| Beer | $0.53 per gallon |
| Wine | $1.70 per gallon |
| Liquor | $18.22 (State controlled estimate) |
| Marijuana | Not permitted for recreational use |
Alabama estate and inheritance taxes
There is no estate or inheritance tax in Alabama.
Related Content
-
Seven Tips to Land Your First Client as a Financial Adviser or EntrepreneurBuilding customer relationships is easier when you start from a place of trust and empathy.
-
Asset Protection for Affluent Retirees in 2025Putting together a team of advisers to assist with insurance, taxes and other financial issues can help with security, growth and peace of mind.
-
More Taxes Could Slam New Yorkers Over MTA Budget ShortfallState Taxes Lawmakers warn that New Yorkers may need to brace for more taxes.
-
IRS Free File Is Now Open for 2025: Are Your Taxes Eligible?Tax Filing Official tax season doesn't begin until late January, but taxpayers can start filing free online returns now.
-
California Fires: How to Recover Tax Records and Other Important DocumentsDisaster Recovery Having your tax records and other vital documents is important for claiming casualty loss deductions that can help with recovery.
-
Child and Dependent Care Credit: How Much Is It?CDCTC The non-refundable tax break can help working families afford quality care for their child or qualifying dependent.
-
Gov. Hochul Wants to Triple the New York Child Tax CreditState Tax Millions of New York families could get a larger state child tax credit check over the next two years under a new proposal.
-
U.S. Consumers May Feel Pinch From Panama Canal Tariff HikeTax Policy The Panama Canal tariffs on crossing ships will add to looming price hikes for U.S. consumers as Trump threatens to take control of the historic waterway.
-
The American Opportunity Tax Credit (AOTC): How Much Is It Worth?Tax Credits This tax break can help you offset $2,500 in qualifying expenses tied to your higher education. Here's what you need to know.
-
Does Your State Have a Child and Dependent Care Tax Credit?
Child and Dependent Care Tax Credit Over two dozen states, plus the District of Columbia offer tax credits or deductions for working families.
