Alabama State Tax Help

What is the Cancer Research Institute Fund?

This fund was established to improve cancer survival rates for patients through research aimed at increasing prevention and treatment.

What income is reportable to Alabama?

  • Wages including salaries, fringe benefits, bonuses, commissions, fees, and tips
  • Dividends (Schedule B)
  • Interest on bank deposits, bonds, notes, Federal Income Tax Refunds, mortgages on which you receive payments, accounts with savings and loan associations, mutual savings banks, credit unions, etc. (Schedule B)
  • Original Issue Discount (Schedule B)
  • Distributions from an Individual Retirement Arrangement (IRA) including SEP's and DEC's if you excluded these amounts in a prior year
  • Bartering income (fair market value of goods or services you received in return for your services)
  • Business expense reimbursements you received that are more than you spent for the expenses
  • Amounts received in place of wages from accident and health plans (including sick pay and disability pensions) if your employer paid for the policy
  • Alimony or separate maintenance payments received from and deductible by your spouse or former spouse
  • Life insurance proceeds from a policy you cashed if the proceeds are more than the premium you paid
  • Profits from businesses and professions (Federal Schedule C or C-EZ)
  • Your share of profits from partnerships and S Corporations (Schedule E)
  • Profits from farming (Federal Schedule F)
  • Pensions, annuities, and endowments
  • Lump-sum distributions
  • Gains from the sale or exchange (including barter) of real estate, securities, coins, gold, silver, gems, or other property (Schedule D)
  • Gains from the sale of your personal residence as reported on your federal return
  • Rents and Royalties (Schedule E)
  • Your share of estate or trust income (Schedule E)
  • Prizes and awards (contests, lotteries, and gambling winnings)
  • Income from sources outside the United States
  • Director's fees
  • Fees received as an executor or administrator of an estate
  • Embezzled or other illegal income
  • Refunds of federal income tax if deducted in a prior year and resulted in a tax benefit
  • Payments received as a member of a military service are taxable except for combat pay and certain allowances
  • Property transferred in conjunction with performance of services
  • Jury duty pay

What income is not reportable to Alabama?

  • United States Retirement System benefits
  • State of Alabama Teachers' Retirement System benefits
  • State of Alabama Employees' Retirement System benefits
  • State of Alabama Judicial Retirement System benefits
  • Military retirement pay
  • Tennessee Valley Authority Pension System benefits
  • United States Government Retirement Fund benefits
  • Payments from a "Defined Benefit Retirement Plan" in accordance with IRC 414(j) (Contact your retirement plan administrator to determine if your plan qualifies.)
  • Federal Railroad Retirement benefits
  • Federal Social Security benefits
  • State income tax refunds
  • Unemployment compensation
  • Welfare benefits
  • Disability retirement payments (and other benefits) paid by the Veteran's Administration
  • Workman's compensation benefits, insurance damages, etc., for injury or sickness
  • Child support
  • Gifts, money, or other property you inherit or that was willed to you
  • Dividends on veteran's life insurance
  • Life insurance proceeds received because of a person's death
  • Interest on obligations of the State of Alabama or any county, city, or municipality of Alabama
  • Interest on obligations of the United States or any of its possessions.
  • Amounts you received from insurance because you lost the use of your home due to fire or other casualty to the extent the amounts were more than the cost of your normal expenses while living in your home (You must report as income reimbursements for normal living expenses.)
  • Military allowances paid to active duty military, National Guard, and active reserves for quarters, subsistence, uniforms, and travel
  • Subsistence allowance received by law enforcement and corrections officers of the State of Alabama
  • All retirement compensation received by an eligible fire fighter or a designated beneficiary from any Alabama firefighting agency
  • All retirement compensation received by an eligible peace officer or a designated beneficiary from any Alabama police retirement system
  • Death benefits received by a designated beneficiary of a peace officer or fireman killed in the line of duty
  • Income earned while serving as a foreign missionary after first serving 24 months as a missionary in a foreign country
  • Compensation received from the United States for active service as a member of the Armed Forces in a combat zone designated by the President of the United States
  • An amount up to $25,000 received as severance, unemployment compensation or termination pay, or as income from a supplemental income plan, or both, by an employee who, as a result of administrative downsizing, is terminated, laid-off, fired, or displaced from his or her employment, shall be exempt from state income tax. If the exempt severance pay is included in your state wages, contact your employer for a corrected W-2 (W2).
  • Beginning January 1, 1998, all benefits received from Alabama Prepaid Tuition Contracts (PACT)
  • Alabama 529 savings plan
  • Income received from the Department of Defense as a result of a member of the military killed in action in a designated combat zone
  • Any income earned by the spouse in the year of death of a member of the military who has been killed in action in a designated combat zone

What are qualified long-term care insurance premiums?

Premiums paid pursuant to a qualifying insurance contract for qualified long-term care coverage paid by the taxpayer may be deducted. Qualified long-term care services include care for necessary diagnostic, preventive, therapeutic, and rehabilitative services and maintenance or personal care services which are required by a chronically ill individual in a qualified facility or services which are provided pursuant to a place of care prescribed by a licensed health care practitioner.

What is the Basic Skills Education Credit?

The Basic Skills Education Credit is available to resident and nonresident employers who provide basic skills education programs approved by the Alabama Department of Education to employees. Expenses incurred for or relating to instructors, materials, or equipment used in the program, or for supplies, textbooks, or salaries, including compensation paid to employees while participating in the program, are considered eligible expenses. No credit is allowed for employers receiving reimbursement for any cost of the education.

What is the Rural Physician Credit?

The Rural Physician Credit is available to licensed resident and nonresident physicians who practice and reside in a small or rural Alabama community of less than 25,000 residents with admission privileges to a small or rural hospital having an emergency room.

Under the terms of this credit a "small or rural hospital" is defined as an acute care hospital with less than 105 beds, located more than 20 miles from another acute care facility, or which receives Medicare rural reimbursement from the federal government.

The amount of this credit is $5,000 per year and may not be claimed for more than five consecutive tax years. No credit will be allowed to physicians having previously practiced within a rural community on or before May 5, 1993 unless he/she returns to such practice after having practiced in a large or urban community for at least three years. This credit is limited to five years.

What is the Coal Credit?

The Coal Credit is available for corporations producing coal mined in Alabama. The credit is equal to $1 per ton of increased coal production from the amount produced in calendar year 1994. If no coal was produced in 1994, the corporation must establish a base year by producing coal for 12 consecutive months. The credit will then be based on the increased production from this base year.

What is the Alabama Enterprise Zone Act Credit?

To stimulate business and industrial growth in depressed areas of the state, Alabama offers certain tax incentives to corporations, partnerships, and proprietorships which locate or expand within a designated enterprise zone.

In order to qualify for the tax credits, a business must be located within a designated zone as approved by the Alabama Department of Economic and Community Affairs.

If a credit is earned by a partnership or S corporation, the credit will be distributed to each partner or shareholder based on the percentage of ownership. The partnership or S corporation should advise each partner or shareholder of the amount of his/her income subject to this credit.

For further information regarding the Alabama Enterprise Zone Act and the necessary forms to claim this credit, you should contact:

Alabama Department of Economic and Community Affairs
Development Division
401 Adams Avenue
P. O. Box 5690
Montgomery, AL 36103-5690
Phone (334) 242-8672


Alabama Department of Revenue
P.O. Box 327410
Montgomery, AL 36132-7410
Phone (334) 242-1000

What is the Capital Credit?

The Capital Credit is available to investing companies and their recipients involved in a qualified project undertaken by certain new businesses to be located in the state and certain expansions of certain existing businesses. To qualify, the project entity must be registered with and approved by the Commissioner's Office of the Alabama Department of Revenue.

The credit should be reported to you on Form K-RCC. To claim this credit, you'll need to attach Form K-RCC to your return and mail the return.

What adoption-related expenses should I enter?

The reasonable medical and legal expenses paid or incurred by the taxpayer in connection with the adoption of a minor may be deducted as an adjustment to income. The term "medical expenses" includes any medical and hospital expenses of the adoptee and the adoptee's biological mother which are incident to the adoptee's birth. This also includes subsequent medical care expenses which are paid or incurred before the petition is granted in the case of the adoptee. Adoption agency fees are not deductible.

The expenses allowed on your 2014 return are limited to those expenses paid or incurred on or after January 1, 2014, even though adoption proceedings may have begun before this date.

Accurate records of all expenses claimed as an adjustment to income must be maintained by the taxpayer and be available to the Alabama Department of Revenue upon request.

Can I claim my foster child as a dependent?

No. You cannot claim a foster child, friend, cousin, yourself, or your spouse as a dependent under Alabama law.

Can I claim an exemption for a dependent who was born or who died during 2014?

You can take an exemption for a dependent who was born or who died during 2014 if he or she met the qualifications for a dependent while alive.

Are there out-of-state purchases that aren't subject to Alabama use tax?

Yes. Automobiles, trucks, trailers, mobile homes, and motor boats which must be titled or registered are not subject to Alabama Use Tax. Tax on these items will be collected at the time of registration by the appropriate county licensing official.

What are examples of items purchased out-of-state that are subject to Alabama use tax?

  • Clothing
  • Books
  • Computers
  • Computer Software
  • Furniture
  • Magazine Subscriptions
  • Sporting Goods
  • Jewelry
  • Electronic Equipment
  • CDs, DVDs, Audio & Video Cassettes
  • Photographic Equipment
  • Musical Equipment
  • Automotive Accessories and Parts
  • ATVs
  • Lawn and Garden Equipment
  • All other retail purchases subject to Alabama sales tax

Does a Democratic/Republican Party contribution increase my tax?

Yes. If you make a voluntary contribution to this fund it will increase your tax by the amount of the contribution. Each individual may contribute $1 to either or both parties. If a joint return is filed, each spouse may contribute $1 to either or both parties.

What are estimated tax payments? What do I enter on this screen?

Estimated tax is the method used to pay tax on income that is not subject to withholding. This includes income from self-employment, interest, dividends, alimony, rent, gains from the sale of assets, prizes, and awards. You may also have to pay estimated tax if the amount of income tax being withheld from your salary, pension, or other income is not enough to cover your anticipated tax liability.

You can enter the following on this screen:
  • Any estimated tax payments you made for 2014
  • Amounts credited from your 2013 return
  • Any amounts prepaid with extension requests
Do NOT enter any amount of your 2014 Alabama income tax withheld by your employer(s) as shown on any wage or tax statements.

What is the Alabama Senior Services Trust Fund?

This fund will assist in the support of programs for the aging in Alabama.

What is the Alabama Arts Development Fund?

This fund provides for grants to tax-exempt organizations or associations to encourage development of quality arts activities or cultural facilities in local areas.

What is the Alabama Nongame Wildlife Fund?

This is a program under the jurisdiction of the Game and Fish Division of the Department of Conservation which provides management of such nongame wildlife.

What is the Child Abuse Trust Fund?

This fund encourages the direct provision of services to prevent child abuse and neglect.

What is the Alabama Veterans Program?

This fund provides supportive assistance through nursing and related health care for Alabama ailing and aged veterans of the armed forces who have need of special nursing and related health care services.

What is the Foster Care Trust Fund?

The Foster Care Trust Fund provides educational, athletic, artistic, and special occasion opportunities to Alabama's foster children.

What is the Mental Health Fund?

This is a non-profit organization dedicated to the eradication of mental illness and the improvement of the quality of life for those whose lives are affected by these diseases. Your donation to this fund will help provide unconditional support to persons experiencing mental pain and those struggling toward recovery.

What is the Alabama Breast and Cervical Cancer Research Program?

The University of Alabama at Birmingham's Comprehensive Cancer Center is a nationally funded leader in breast and cervical research providing cutting edge clinical care to the people of Alabama. Your donation to this fund will help in the fight against breast and cervical cancer.

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