Alabama offers several advantages for retirees. In addition to a warm climate and Southern hospitality, the state offers both a low income tax rate and exempts most retirement benefits from the income tax.
Tax Exemptions for Retirement Income in AlabamaIn Alabama all income is subject to the State Income Tax unless it has been specifically exempted by state law. Fortunately almost all sources of retirement income have achieved this status.
Social Security, most government pensions, military retirement pay, federal pensions, veterans' benefits, teachers' pensions, police pensions, railroad pensions, and firefighters' pensions are not subject to Alabama income tax. Private pensions and retirement plans that are recognized as defined retirement plans by the state of Alabama are also exempt from the Alabama state income tax.
Income Taxes in Alabama
All other forms of retirement and investment income including income from annuities are taxed in Alabama. All interest income except that earned from government bonds is subject to Alabama income tax as well. Funds in tax deferred retirement vehicles are not taxed, but money taken out of such accounts is.
Any Alabama resident with a gross income that exceeds $4,000 a year must file a tax return. A married couple filing jointly must file an Alabama tax return if their gross income exceeds $10,500 a year. Nonresidents must file a return if their income in the state exceeds the prorated personal deduction.
The minimum standard deduction in Alabama is $4,000 for married couples filing jointly and $2,000 for everyone else. If 20% of a couple or individual's adjusted gross income exceeds those amounts that figure can be used for the deduction. Persons who itemize their federal tax return do not have to itemize in Alabama.
The individual income tax rate in Alabama is 2% for the first $500 of taxable income, 4% for the next $2,500 of taxable income, and 5% for all taxable income that exceeds $3,000 for individuals. Married couples filing jointly pay a 2% rate for the first $1,000 of taxable income, 4% for the next $5,000 of taxable income, and 5% on all taxable income that exceeds $6,000.
Alabama Sales Tax
Alabama only charges state sales taxes on certain items. Most retail purchases, including groceries, are exempt from the State Sales Tax. The only food that Alabama taxes in that sold through vending machines.
Alabama charges a 10 cent tax on every prescription sold to a resident of the state. For retail items that are taxed, the normal sales tax rate is 4%. This tax is only charged for specific items and will be listed on cash register receipts. Alabama also charges a 6% tax on telephone service and a 6% tax on mobile phone service. In addition to that there is a 2.2% utility tax in Alabama.
Local sales taxes in Alabama can be much higher because cities and counties have the right to charge additional sales taxes in the state. This calculator can show you what the sales tax rate will be in different regions of Alabama.
Property Taxes in Alabama
As in most states, property taxes in Alabama are set by county and other local governments. The only way to determine what the tax rate on a piece of property in Alabama would be is to contact the Assessors' Fffice in the county where the land is located.
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