Overview of Alabama Taxes
Alabama is a state with relatively low income tax and effective property tax rates. The state sales tax of 4% is also low, but local rates can more than double what you pay in sales tax in some cities.
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Your Income Taxes Breakdown
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* These are the taxes owed for the 2023 - 2024 filing season.
Your 2023 Federal Income Tax Comparison
- Your marginal federal income tax rate
- Your effective federal income tax rate
- Your federal income taxes
Total Estimated 2023 Tax BurdenIncome Tax $ Sales Tax $ Fuel Tax $ Property Tax$ Total Estimated Tax Burden $ Percent of income to taxes = % | $ |
- About This Answer
Our income tax calculator calculates your federal, state and local taxes based on several key inputs: your household income, location, filing status and number of personal exemptions.
How Income Taxes Are Calculated
- First, we calculate your adjusted gross income (AGI) by taking your total household income and reducing it by certain items such as contributions to your 401(k).
- Next, from AGI we subtract exemptions and deductions (either itemized or standard) to get your taxable income. Exemptions can be claimed for each taxpayer as well as dependents such as one’s spouse or children.
- Based on your filing status, your taxable income is then applied to the the tax brackets to calculate your federal income taxes owed for the year.
- Your location will determine whether you owe local and / or state taxes.
- Last Updated: January 1, 2024
When Do We Update? - We regularly check for any updates to the latest tax rates and regulations.
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Taxes in Alabama
Alabama State Tax Quick Facts
- State income tax: 2% - 5%
- Local income tax: 5.24% - 7.5%
- Sales tax: 0% - 8.5%
- Property tax: 0.39% average effective rate
- Gas tax: 28 cents per gallon of regular gasoline, 29 cents per gallon of diesel
Taxes in the Yellowhammer State are by and large lower than in most other states. Alabama has the second lowest average effective property tax rate in the country, and its income tax rates range from just 2% to 5%, lower than most other states that have an income tax. However, rates could be higher depending on where in Alabama you live or work, as local governments can also collect income taxes ranging from 0% to 2%.
The statewide sales tax of 4% ranks as one of the lowest in the country, but local sales taxes bring the average sales tax in the state up to 9.24%, which is the fifth-highest nationwide.
A financial advisor can help you understand how taxes fit into your overall financial goals. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Alabama Income Taxes
The state income tax in Alabama is similar to the federal income tax, with increasing rates based on income brackets. However, while the federal income tax has seven brackets, Alabama has just three, with the top rate of 5% applying to all taxable income over $3,000.
These rates do not apply to gross income, but to Alabama taxable income, which is gross income minus any applicable deductions and exemptions. Taxpayers who itemize deductions federally may also do so on their Alabama return, but they can claim the Alabama standard deduction instead (and vice versa).
The Alabama standard deduction varies depending on filing status and income. At a certain point, the deduction descends steadily for increasing income levels, until it reaches its minimum amount at either $15,000 or $30,000, as is reflected in the table below.
Alabamans in certain cities must also pay municipal occupational taxes. Unlike Alabama state income taxes, municipal occupational taxes apply to gross wages (as opposed to taxable income), and are typically withheld from workers’ paychecks. The table below shows the rates for the cities in Alabama with an occupational tax.
Alabama Sales Tax
Most goods sold in Alabama will be subject to both state and local sales taxes. The state sales tax rate is 4%. Additional taxes are then levied at the local level. The table below shows the total rates for all of Alabama's counties.
Among the types of products subject to the rates above are clothing, furniture, electronics and automobiles. Food is also taxable in Alabama. In fact, Alabama is also one of just two states that taxes all food at the full sales tax rate, without offering any form of food tax rebate or relief.
Alabama Property Tax
Depending on how you measure it, Alabama's property taxes are either the lowest or second lowest in the nation. To begin with, Alabama homeowners pay an average of just $674 every year in property taxes, the lowest annual average of any state. When measuring effective property tax rates (payments as a percentage of home value), Alabama ranks second lowest with a rate of 0.39%. Hawaii, where home values are more than quadruple those in Alabama, ranks first.
If such low property taxes make you want to call Alabama home sweet home, check out our mortgage guide for the most important information about getting a mortgage in Alabama. Also check it out if you’re looking to refinance a property in the Yellowhammer State.
Alabama Capital Gains Tax
Capital gains are taxed as normal income in Alabama, and thus they are subject to the top income tax rate of 5%. City occupational taxes do not apply to capital gains, however, since they are not wages.
Alabama Tobacco Tax
Cigarettes are taxed at a rate of 67.5 cents per pack in Alabama.
- Alabama derives its nickname, “The Yellowhammer State,” from the state bird, the northern flicker, a type of woodpecker often referred to as a yellowhammer.
- The University of Alabama and Auburn University both rank in the top 20 nationally for average attendance at their home college football games, with over 100,000 and 80,000, respectively, in average attendance.