Alabama State Tax Guide

Bottom Line

Middle-Class Families: Mixed (Go to the Kiplinger Tax Map for Middle-Class Families (opens in new tab))

Retirees: Tax-Friendly (Go to the Kiplinger Tax Map for Retirees (opens in new tab))

If you're a college football fan, perhaps you've thought about moving to Alabama. But there are also non-football reasons for relocating to the Yellowhammer State — like relatively low taxes for many residents. While most people end up paying the highest income tax rate, it's not too bad at only 5%. Alabama also boasts the second-lowest median property tax rate in the country.

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But Alabama fumbles when it comes to sales taxes. At 4%, the state rate is low, but some local governments tack on up to 7.5% in additional sales taxes. As a result, the state-wide average combined (state and local) sales tax rate is 9.24%, which is the fifth-highest in the nation.

Alabama Income Taxes

Alabama Income Tax Range

Low: 2% (on up to $1,000 of taxable income for married joint filers and up to $500 for all others)

High: 5% (on more than $6,000 of taxable income for married joint filers and more than $3,000 for all others)

Some Alabama municipalities also impose occupational taxes on salaries and wages.

Alabama Taxation of Social Security Benefits

Social Security benefits are not taxed by the state.

Alabama Tax Breaks for Other Retirement Income

Income from federal government, designated Alabama state and local government, and military retirement plans is exempt.

In addition, payments from traditional pension plans (i.e., defined benefit plans) are exempt, whether they are from private sector or out-of-state government plans.

Beginning in 2023, the first $6,000 of retirement income received by anyone 65 years of age or older is exempt.

Railroad Retirement benefits are also exempt.

Alabama Sales Tax

4% state levy. Localities can add as much as 7.5% to that, and the average combined rate is 9.24%, according to the Tax Foundation.

• Groceries: Taxable
• Clothing: Taxable
• Motor Vehicles: Taxable (2% state rate; additional local taxes may apply)
• Prescription Drugs: Exempt

Alabama Real Property Taxes

In Alabama, the median property tax rate is $390 per $100,000 of assessed home value.

Alabama Property Tax Breaks for Retirees

All homeowners 65 or older are exempt from the state portion of property taxes. Taxpayers age 65 and older with net taxable income of $12,000 or less on their combined (taxpayer and spouse) federal income tax return are exempt from all property taxes on their principal residence.

Alabama Motor Fuel Taxes

Gasoline: 31.31¢ per gallon.

Diesel: 32.25¢ per gallon.

Alabama Sin Taxes

Cigarettes: $0.68 per pack; counties can add up to $0.25

Snuff: approximately $0.02 per ounce

Chewing tobacco: approximately $0.02 per ounce

Loose smoking tobacco: $0.04 to $0.06 per ounce

Cigars: $0.04 to $0.40 per 10 cigars (depending on type)

Beer: $1.05 per gallon (includes mandatory $0.52 per gallon local tax)

Wine: $1.96 per gallon

Liquor: $19.11 per gallon (the liquor tax is an estimate by the Distilled Spirits Council of the United States and published by the Tax Foundation)

Alabama Estate and Inheritance Taxes

No estate or inheritance tax.