How does Alabama tax remote workers?
There are a few situations to consider. You may fall into more than one category.
If your wages were minimal and you didn't do any other business in Alabama, it's possible you'll be exempt from filing regardless of residency. See the Alabama Form 40 and 40NR instructions for more information.
Footnote: In March 2023, the Alabama Tax Tribunal ruled that a nonresident who works remotely for a company located in Alabama and does not work in the state is still required to pay Alabama income taxes, reasoning that the employment with an Alabama company constituted "transacting business in Alabama." This ruling departed from the commonly held understanding that you must work in Alabama to be required to pay taxes in Alabama. Generally, this is referred to as the "convenience of employer" rule.
- I lived in Alabama
- If you're considered a full-year or part-year resident of Alabama, you'll be taxed on all income earned from any source during your time of residency. Be sure to file the appropriate return.
- I worked remotely from Alabama.
- Alabama taxes income earned for personal services performed while in Alabama (even if you're a nonresident). This includes remote work for an employer or clients based outside Alabama if you were physically in the state while doing the work. Your employer is required to withhold Alabama income taxes at the start of your employment. Please check with your Human Resources Payroll department for withholding requirements in Alabama.
- You may be able to claim a credit for taxes paid to another state on your resident return for any income required to be reported in multiple states.
- My employer was based in Alabama.
- If your employer was based in Alabama, they are required to withhold Alabama taxes from your Alabama wages as shown on your W-2. Even if you didn't live or physically work in Alabama, you will owe Alabama taxes on those wages and must file a nonresident return to pay underpaid taxes or claim a refund of any overpayment. See footnote.
- If your employer didn't withhold Alabama taxes and you were a nonresident of Alabama, you are still required to file an Alabama return. See footnote.
If your wages were minimal and you didn't do any other business in Alabama, it's possible you'll be exempt from filing regardless of residency. See the Alabama Form 40 and 40NR instructions for more information.
Footnote: In March 2023, the Alabama Tax Tribunal ruled that a nonresident who works remotely for a company located in Alabama and does not work in the state is still required to pay Alabama income taxes, reasoning that the employment with an Alabama company constituted "transacting business in Alabama." This ruling departed from the commonly held understanding that you must work in Alabama to be required to pay taxes in Alabama. Generally, this is referred to as the "convenience of employer" rule.
