State of Alabama is not a very favorable state for taxes. According to TaxFoundation.org, they are ranked #41 overall. For your convenience, we’ve provided you the most common information regarding Alabama’s various taxes.
Alabama State Income Tax Rate
Alabama’s State Income Tax Rate is calculated on a marginal scale. That means that it has different brackets that range from 2.00% to 5.00% for 2021. Alabama’s tax brackets are:
- 2% anything greater than Zero
- 4% anything greater than $500
- 5% anything greater than $3,000
Alabama’s income tax rate went up in 2021. The highest bracket of 5.00% is an increase from 4.00% in 2020.
Local City Tax
Alabama also has a local income tax that is imposed by city or county. On average the Local Tax is 0.10% of Adjusted Gross Income.
State Business Taxes in Alabama
The state of Alabama has a flat Corporate Tax rate of 6.50%. For other business entities that are flow-thru entities, such as S Corporations, Partnerships, LLCs, etc., they are taxed the individual income tax rates between 2.00% to 5.00% (max).
Privilege Tax in Alabama
The state of Alabama has a Capital Stock Tax referred to as Privilege Tax. The Privilege tax is based on the net worth of your business times 0.175%. The Privilege tax has a minimum tax of $100, and maximum tax of $15,000 per year.
For example, if the net worth of your business was $600,000, your Privilege Tax would be $1,050 ($600,000 x 0.175%).
Sales and Property Taxes in Alabama
Sales Tax – Like many states, Alabama has multiple tax rates. One at the state level and another at the local level. The state rate is 4.00% the average local rate is 5.22% (total average tax rate for Alabama Sales Tax is 9.22%).
Property Taxes in Alabama – the average property tax rate for residential property in the state of Alabama is 0.40%, making it almost the lowest effective property tax rate in the country (just behind Hawaii which has the lowest).
Unemployment taxes in Alabama
Unemployment taxes usually consist of three factors. They are the wage base, range of rates, number of schedules. Below is an outline of the three:
- Wage Base – Alabama has a low wage base of $8,000 for 2020
- UI Rates – range from 0.65% to 6.80%
- Schedules – Alabama has four rate schedules regarding Unemployment taxes.
Alabama Business Entities – LLCs
Alabama refers to its yearly LLC fee as a Privilege Tax. Here are some important facts:
- Alabama annual LLC fee (a.k.a. Privilege Tax) is $100
- The year you register with the State, you pay a one time fee of $150.00
- Secretary of State of Alabama website – click here