What Income is Taxable in Alabama?

One of the few states in the union, Alabama taxes all forms of income, including capital gains, dividends, interest, wages, salaries, tips, and interest income. In other words, you must pay taxes on your income if you receive it from any source while residing in Alabama. Exemptions and deductions, on the other hand, can lower your taxable income, which in turn lowers the amount of taxes you owe.

The income tax rate in Alabama is progressive, which means that it rises as your income does. Depending on your income level, the tax rates for the fiscal year 2021 range from 2% to 5%. The following are the tax rates for single filers:

– $0 – $500: 2%

– $501 – $3,000: 4%

– For amounts over $3,000, 5%

– $0 – $1,000: 2%

– $1,001 – $6,000: 4%

– For amounts over $6,000, 5%

Alabama levies a sales tax on the majority of the goods and services bought and sold there, in addition to an income tax. County and local governments have the option to tack on their own additional sales taxes on top of the state’s current 4% sales tax rate. As a result, the overall sales tax rate in Alabama might vary based on the locality from 4% to 11%.

Although there are few exceptions, professional services are typically excluded from Alabama’s sales tax. Sales tax may apply to some services rendered by accountants, architects, engineers, and lawyers, for instance. Sales tax is also applicable to several personal services, like haircuts and massages.

Sales tax must normally be collected and submitted by contractors when they sell tangible personal property, such as building supplies and materials. However, while building, modifying, or fixing real estate, contractors are not required to collect sales tax on their labor costs.

The Alabama Department of Revenue may compel you to register for sales tax if you own a business there. Visit the department’s website and fill out the online registration form to register for sales tax. You must submit details about your company, including your name, address, and tax identification number, as well as details on the goods and services you offer.

In conclusion, Alabama has a progressive income tax system and taxes income from all sources. The majority of goods and services sold within Alabama are subject to a sales tax, the amount of which varies depending on the locality. There are several exceptions to the general rule that professional services are excluded from sales tax, and contractors are obligated to collect sales tax on their sales of tangible personal property. The Alabama Department of Revenue may compel you to register for sales tax if you own a business there.