Alabama Tax Calculator
Alabama Income Tax
Alabama levies a graduated income tax with three brackets, ranging from 2% to 5%. The bracket thresholds are notably low compared to other states, meaning most Alabama residents with any meaningful income will pay the top rate of 5% on the majority of their earnings. For single filers, the 5% rate kicks in at just $3,000 of taxable income; for married couples filing jointly, it begins at $6,000.
What makes Alabama unique among states is its deduction for federal income taxes paid. Alabama is one of only three states that allows taxpayers to deduct their entire federal income tax liability from their state taxable income. This effectively lowers the real tax burden for higher earners significantly. For example, a single filer earning $100,000 who pays $15,000 in federal taxes would only owe Alabama tax on $85,000 after the federal deduction (plus the state standard deduction of $2,500 for single filers or $7,500 for married filers). Alabama also provides a personal exemption of $1,500 per person ($3,000 for married couples).
Alabama does not conform to the federal standard deduction. Instead, it uses its own deduction amounts and also allows itemized deductions. Retirement income receives favorable treatment: Social Security benefits are fully exempt, and many public pension payments are also excluded from state taxation.
| Bracket (Single) | Rate | Bracket (Married Filing Jointly) |
|---|---|---|
| $0 – $500 | 2.0% | $0 – $1,000 |
| $501 – $3,000 | 4.0% | $1,001 – $6,000 |
| Over $3,000 | 5.0% | Over $6,000 |
Alabama Sales Tax
Alabama imposes a state sales tax of 4.00%, which is relatively modest on its own. However, Alabama grants significant taxing authority to cities and counties, resulting in local sales taxes that can add 5% or more. The average combined state and local sales tax rate is approximately 9.27%, one of the highest in the nation. Some jurisdictions in Alabama have combined rates exceeding 11%.
Unlike most states, Alabama taxes groceries at the full state rate with no reduced rate or exemption. When local taxes are added, Alabama residents often pay over 9% tax on food purchases. Prescription drugs are exempt from sales tax, but over-the-counter medications are taxable. There is no annual sales tax holiday in Alabama, though the state does hold periodic back-to-school tax-free weekends for clothing and school supplies.
Alabama Property Tax
Alabama has the lowest effective property tax rate in the United States at approximately 0.39%. The state constitution limits the total property tax rate that can be levied, and voters must approve any increases. Property is assessed at different percentages of market value depending on its classification: residential property is assessed at 10% of fair market value, while commercial property is assessed at 20%.
Alabama offers several homestead exemptions. Homeowners over age 65 are completely exempt from state property taxes on their primary residence. The standard homestead exemption reduces assessed value by $4,000 for state taxes and varying amounts for county taxes. These low property taxes are a major draw for retirees relocating to Alabama.
Federal Tax Deduction: Alabama's Unique Advantage
Alabama's most distinctive tax feature is the full deduction for federal income taxes paid. This creates a circular calculation where your Alabama tax depends on your federal tax, which in turn depends on your Alabama tax (if you itemize federally). In practice, this deduction can reduce the effective Alabama income tax rate by 1-2 percentage points for many taxpayers.
For a married couple earning $150,000, the federal tax deduction could reduce Alabama taxable income by $20,000 or more, saving roughly $1,000 in state taxes. This makes Alabama's effective income tax rate considerably lower than the statutory 5% top rate would suggest. Combined with the very low property taxes, Alabama can be surprisingly tax-friendly despite the high sales tax rates.
Alabama Retirement Tax Benefits
Alabama is one of the most tax-friendly states for retirees. Social Security benefits are completely exempt from state income tax. Public pension income from federal, state, county, and city retirement systems is also fully exempt. Private pension income and distributions from 401(k) and IRA accounts are subject to the standard income tax rates, but the federal tax deduction and personal exemptions help reduce the burden. Property tax exemptions for seniors further enhance Alabama's appeal as a retirement destination.
Alabama vs. Neighboring States
- Georgia — Georgia's flat 5.49% income tax is higher for most earners than Alabama's effective rate (after the federal tax deduction). Georgia has a lower combined sales tax (7.38% avg) but higher property tax (0.83%). Georgia does not allow a federal tax deduction.
- Florida — Florida has no income tax at all, making it better for high earners. Florida's sales tax (7.05% avg) is lower than Alabama's (9.27%). Property tax is higher at 0.86%. Florida is the clear winner for those prioritizing income tax savings.
- Tennessee — Tennessee has no income tax, similar to Florida. However, Tennessee's combined sales tax (9.55% avg) is even higher than Alabama's. Property tax is higher at 0.64%. Tennessee is better for high earners but comparable for consumers.
- Mississippi — Mississippi has a graduated income tax with a top rate of 5% (being reduced to 4% by 2026). Sales tax is 7.07% combined, and property tax is 0.67%. Mississippi does not allow a federal tax deduction, making Alabama potentially more favorable on income tax after the deduction.