Kay Ivey signed an emergency proclamation today making the payments of up to $1,200 for individuals and $2,400 for married couples exempt from state income tax. Alabama collects a state income tax, with rates of 2%, 4% and 5%. Learn how filing status affects your tax bill Alabama income tax rates. For lower-income residents, that tax hit can be painful, since the state … But there is an often-overlooked federal law and a couple of Alabama exemption statutes we should keep in mind. Fax the approval letter to (334) 242-0112. 1/99 FULL NAME SOCIAL SECURITY NO. Alabama income tax must not be withheld when exempt severance payments are made. The top rate can’t go above 5% because of the limit imposed by the state Constitution. Form 40 is the Alabama income tax return form for all full-time and part-time state residents (non-residents must file a Form 40NR). You won’t have to worry about rising income tax rates in Alabama. Here's an excerpt taken directly from the State of Alabama web site: I AM OVER 65. The Alabama Department of Revenue offers a FREE electronic service, My Alabama Taxes (MAT), for filing and remitting withholding tax. MAT is an online filing system developed to allow taxpayers to file and pay their withholding tax electronically. The theory is that the individual earned the benefits (tax-free) while he or she was working in Alabama, and thus the benefits should be taxable by Alabama, regardless of where the taxpayer resides when the payments are received. HOME ADDRESS CITY STATE ZIP CODE If you had no Alabama income tax liability last year and you anticipate no Alabama income tax liability this year, you may claim ''exempt'' from Alabama withholding tax. Also, the amount of the exempt severance payments should not be included in Alabama taxable wages (box 16) of the employee W-2 form, but should be disclosed in box 14 (Other) of the W-2 as exempt severance payments. File Schedules 3 & 4 to itemize your tax exemptions, and additional taxes paid. Gov. FORM ALABAMA DEPARTMENT OF REVENUE A-4 Employee's Withholding Exemption Certificate REV. They were already exempt … Alabama's income tax brackets were last changed twelve years ago for tax year 2008, and the tax rates have not been changed since at least 2001.. Alabama has three marginal tax brackets, ranging from 2% (the lowest Alabama tax bracket) to 5% (the highest Alabama tax bracket). Generally, the Alabama state tax rate on income is 2 percent on the first $500 of income, 4 percent on the next $3,000 and 5 percent of all income … If you live in Alabama, you pay a state income tax in addition to filing your federal income taxes. The Alabama dependent exemption amount increased significantly for some taxpayers beginning in 2007, as a result of a tax reform measure passed by the Legislature in 2006. 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