Withholding Taxes: Alabama

Federal law and guidance on this subject should be reviewed together with this section.

Author: Vicki M. Lambert, The Payroll Advisor

Summary

• Whether an employee is a resident or nonresident of Alabama determines whether the employee is subject to income tax withholding in the state. Different income tax withholding rules apply to an Alabama resident working in another state, a nonresident working in Alabama, and an expatriate working abroad. Separate withholding rules also apply to employers that are nonresidents of Alabama. See Withholding on Residents, Nonresidents and Expatriates.
• Employers are required to obtain a completed Form A-4, Employee's Withholding Tax Exemption Certificate, from each employee. Alabama does not accept the federal Form W-4. See Employee Withholding Forms.
• Alabama employers may withhold state income tax from supplemental wages, such as bonuses, at a set rate. See Supplemental Wages.
• Employers that have paid a certain amount of Alabama wages to any employee during the preceding year, or that have withheld Alabama income tax from the wages of any employee during the preceding year, must provide the employee two copies of federal Form W-2, Wage and Tax Statement, by January 31 of the following year. See Form W-2 Requirements.
• For state income tax withholding purposes, employers must keep a complete set of permanent books of accounts and records that are sufficient to establish the correct amount of tax due or the value of deductions, credits and exemptions. The records must be kept for a certain number of years set by law. See Recordkeeping Requirements.
• Multiple localities in Alabama have payroll taxes to which an employer may be subject. See Local Payroll Taxes.