Alabama has an average combined sales and a local tax rate of 9.24%. The state ranks fifth overall in sales taxes by state. Alabama doesn’t charge a social security tax and boasts one of the lowest property tax rates.
Below, we explain various state taxes affecting retirement income and your ability to live affordably in Alabama, such as sales tax, retirement tax, and property taxes. We’ve also provided details about tax credits, exemptions, tax relief programs, and retirement-related tax breaks.
For information regarding taxes in other states, see Retirement Taxes by State.
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Alabama Tax Rates 2022
|Avg State/Local Sales Tax||9.24%|
|Gas Tax||$0.28 per gallon|
|Diesel Tax||$0.29 per gallon|
|Cigarette Tax||$0.67 per pack|
|Income Tax||5% maximum|
|Social Security Tax||None|
|Federal Income Tax Deduction||Full deduction less claimed tax credits|
Alabama Tax Rates Explained
Alabama Sales Tax
The Alabama state sales tax is 4%. When combined with average local taxes, the average local and sales tax is 9.24%, depending on the municipality. Prescription drugs and some grocery items are exempt. Comparative to other states, Alabama ranks among the highest states for sales tax rates. Vehicle taxes are also levied.
Alabama Income Tax
On the low end, Alabama levies a reasonable 2% income tax, but married joint filers making more than $6,000 of taxable income ($3,000 for all others) incur a 5% fee. Some Alabama municipalities also impose occupational taxes on salaries and wages.
Alabama Property Taxes
Alabama’s effective property tax ranks among the lowest in the nation at 0.41%. Homeowners pay $587 on a $142,700 home—the state’s median home value. Each county may charge an additional property tax.
Homeowners aged 65 and older are exempt from all Alabama state property taxes. In this age group, taxpayers with a net combined federal taxable income of $12,000 or less (homeowner and spouse) pay no property tax on their principal residence.
Taxpayers can take a deduction on the Alabama tax return against contributions to a catastrophe savings account. Interest income is exempt in these accounts, used exclusively to pay for insurance premiums.
Alabama Retirement Taxes
Medical/dental deductions are limited to the excess of 4% of adjusted gross income. However, taxpayers may deduct 50% of the premiums paid for health insurance if their employer has fewer than 25 employees.
You can fully deduct federal tax liability less claimed tax credits. Alabama does not tax any retirement income military pay or pensions, or survivor benefits.
Alabama Inheritance and Estate Taxes
Alabama does not impose a state estate or inheritance tax.
Visit the Alabama Department of Revenue site for more information about state taxes.