Alabama Income Tax Rates & Brackets (Tax Year 2025 — Filed in 2026)

Remote Workers and Multi-State Taxation

Living in Alabama, Working for an Out-of-State Employer

As an Alabama resident, you owe Alabama income tax on all income from all sources, regardless of where your employer is located or where your employer is incorporated.

What this means for remote workers:

• Employer location does not determine Alabama tax obligation
• Income from employers in other states — including California, New York, Texas, or any other state — is fully taxable to Alabama
• Your employer should withhold Alabama income tax from your wages
• If your out-of-state employer does not withhold Alabama tax, you must make estimated tax payments or pay the balance when filing your return

Regulatory authority: Alabama Administrative Code Rule 810-3-2-.01 — Individuals domiciled within Alabama are taxable on their income whether earned within or without Alabama.

Example: An Alabama resident working fully remote for a California-based company owes Alabama income tax on all wages earned. The employee should ensure Alabama withholding is being made.

Source: https://www.revenue.alabama.gov/faqs/if-i-am-a-resident-of-alabama-but-work-in-another-state-or-country-am-i-required-to-file-an-alabama-tax-return-2/

Working in Alabama, Living in Another State

Non-residents who physically perform work in Alabama owe Alabama income tax on income from that Alabama-source work.

Physical Presence Rule: Income is sourced to Alabama based on where the work is physically performed. If you commute into Alabama to work, wages attributable to the days worked in Alabama are Alabama-source income.

What to file: Form 40NR (Alabama Non-Resident Income Tax Return)

Source: https://www.revenue.alabama.gov/faqs/who-must-file-an-alabama-individual-income-tax-return/ and Alabama Administrative Code Rule 810-3-15-.21

⚠️ Interstate Tax Risk Indicator

Remote workers with Alabama connections commonly encounter multi-state tax complications with the following states:

Working with these states requires careful planning:

• New York — Applies the “convenience of the employer” rule; Alabama residents working remote for New York employers may owe New York tax on days they work from home if New York deems the arrangement is for the employee’s convenience rather than the employer’s necessity
• California — Aggressive residency audits; California can claim residents who spent extended periods in the state; also taxes non-resident income earned in California
• Pennsylvania — 200+ local income tax jurisdictions; workers physically entering Pennsylvania for any days may owe Pennsylvania state and local tax
• Connecticut — Has applied a similar telecommuter rule; complex credit system for taxes paid to other states

Alabama residents who pay income tax to another state may generally claim the Alabama Credit for Taxes Paid to Other States (Schedule OC, Part A on Form 40) to offset potential double taxation.

Source: https://www.revenue.alabama.gov/faqs/does-alabama-allow-a-credit-for-pass-through-entity-taxes-paid-to-other-states/ and IRS Publication 505

“Convenience of the Employer” Rule

Alabama does not apply a “convenience of the employer” rule. Alabama sources income based on where work is physically performed. A non-resident who works from home in their home state and never physically enters Alabama is not subject to Alabama income tax on those wages, even if their employer is an Alabama-based company.

Conversely, Alabama residents working remotely in Alabama for employers located anywhere owe Alabama tax on all income — this is not a “convenience” rule but simply Alabama’s standard resident taxation principle (all-source income taxation of residents).

Source: Alabama Administrative Code Rule 810-3-2-.01 (https://www.revenue.alabama.gov/admin-rules/)

Reciprocal Agreements

Alabama does not have income tax reciprocal agreements with other states for individual income tax purposes.

There is no formal mechanism by which an Alabama resident working in a neighboring state would be exempt from that state’s income tax based on Alabama residency. Similarly, residents of other states working in Alabama cannot claim exemption from Alabama income tax based on their home state’s lack of a reciprocal agreement with Alabama.

Alabama residents with income taxed by another state must:

1. File required non-resident returns in the other state
2. Claim the Alabama Credit for Taxes Paid to Other States on their Alabama Form 40 (Schedule OC, Part A) to reduce double taxation

Source: https://www.revenue.alabama.gov/faq-categories/income-tax-questions/ and https://www.revenue.alabama.gov/faqs/does-alabama-allow-a-credit-for-pass-through-entity-taxes-paid-to-other-states/

Multi-State Tax Filing for Alabama Residents

When earning income in multiple states:

1. File a resident return (Form 40) in Alabama reporting all income from all sources
2. File non-resident returns in other states where income was physically earned
3. Claim the Credit for Taxes Paid to Other States on Alabama Form 40 (Schedule OC, Part A) for income taxes paid to those other states
4. Include a copy of each other state’s return with your Alabama return as documentation

Alabama form: Schedule OC, Section B, Part A (Credit for Taxes Paid to Other States)

Source: https://www.revenue.alabama.gov/faqs/does-alabama-allow-a-credit-for-pass-through-entity-taxes-paid-to-other-states/