Alabama is a beautiful and gorgeous state, hidden in the deep south of the United States. This state possesses plenty of gorgeous beaches, national parks and is famous for its hospitality. Furthermore, this state is one of the cheapest places in the entire US for housing and also one of the excellent destinations for tourism.
Apart from all these perks, the residents always have to deal with payroll taxes, whether it be an employer or employee.
So if you are an Alabamian and looking for a fantastic tool along with a guide to calculating your payroll taxes, and take home paycheck amount, then you are at the right place.
Follow are the steps that every employee and employee needs to consider, working in Alabama.
The first and foremost thing to calculate the paycheck is to determine the Pay Type. It is whether the employee is paid on:
There are no such state laws by Alabama to determine the Hour Worked, Regular Hours. Therefore, employers and employees must follow the guideline provided by U.S Wage and Hours Division and FLSA (Fair Labor Standard Act).
However, Alabama State Law does have laws to regulate overtime, which you will read in Step 3 ahead.
The second step is to determine the Pay Frequency of your Paycheck; it is how often you are paid. Some of the standard Pay Frequencies are:
Pay Frequency | Details |
---|---|
Weekly | The employees are paid once a week. |
Bi-Weekly | The employees are paid once every two weeks. |
Semi-Monthly | The employees are paid twice a month. Usually on the 15th and 30th day of the month. |
Monthly | The employees are paid once every month. Mostly at the start or end of the month. |
Quarterly (Discouraged by Alabama State) | The employees are paid after every three months. |
Annually (Discouraged by Alabama State) | The employees are paid once a year. |
Although Alabama doesn't have a Pay Frequency Regulation in its State Law. However, like all other states, Alabama State also has labor law regulations that oblige the employer to pay the employees regularly on scheduled payday. Moreover, it also requires the employers to pay their hourly employees on regular payday at least, monthly, semi-monthly, bi-weekly, or weekly.
The third step is to determine the Gross Pay of the employee based on the following criteria:
Alabama State Laws for Gross Pay:
Here starts the complicated part. After the Gross Pay for the employee is deduced, the next thing an employer has to do is to refer the W-4 tax form that was filled by the employee, while joining the job.
Note:
This form contains all the essential details, including income tax details, marital status, and the number of allowances to be claimed. These details are required to calculate the Taxable Income, Federal Taxes, Allowances, State Taxes, and Local Taxes, that the employer has to withhold from the employee's salary.
Note: As IRS has made changes in the Tax Form W4, which would be effective from January 2020. Therefore, all the following steps are according to the new form.
There is a total of four filing statuses, from which the employee has to choose one. These are as follow:
Note: You can select "Single" as Marital Status on the Alabama Paycheck Calculator if the employee is "Single" or "Married filing separately." Else Choose "Married" if the employee is "Married Filing Jointly" or "Head of Household."
Taxable income is the income, which is used to determine the amount of taxes that should be withheld from the employee's paycheck by the employer. It is different from Gross Pay.
There is the portion of income that is exempted from the taxes, such as cash gifts, inheritances, rebates, Welfare income, child support, State and local tax refunds, Life insurance, etc. This portion can be determined and claimed by the taxpayer (employee) by using "itemized deductions."
As the "itemized deductions" process is too long, the Taxpayer can also go for "standard deductions (a specific amount defined by the government to be deducted from Gross Pay according to taxpayer's filing status" instead, for calculating the Taxable Income.
Standard Deduction amount for 2018 to 2025 is as follow:
Filing Status | Standard Deduction Amount |
---|---|
Single | $12,000 |
Married Filing Separately | $12,000 |
Married Filing Jointly | $18,000 |
Head of Household | $24,000 |
Qualifying Widow(er)s | $24,000 |
To determine the Taxable income, the taxpayer (employee) has to:
Note: This is just a general overview of Taxable Income. Many other factors need to be considered for Taxable income determination. Moreover, the criteria can be different from person to person. You must refer to your Lawyer, or study Taxable income in detail for calculating the accurate Taxable Income.
Once the taxable income of an employee is deduced, the next step is to subtract any pre-tax contributions that were chosen by the employee. These contributions are designed to encourage employees to save for their retirement. Additionally, it further reduces the amount of taxable income, hence, increasing the take-home amount of an employee.
However, not all contributions are exempted from all taxes, but on federal income tax, therefore, some employees may have to pay FICA, state, or other taxes on such contributions.
Here are some common contributions that employee can choose:
Before jumping on to Federal Taxes, it is important to conclude the number of Allowances that an employee needs to claim.
Allowances are exemptions from paying a certain amount of income tax. Therefore, the amount of withholding tax that an employer withholds from the employee's paycheck is inversely proportional to the number of allowances claimed.
|
|
---|---|
Situation | Number of Allowances to claim |
The taxpayer depends on someone | 0 to 1 Allowance |
Single – One Job – Taxpayer doesn't depend on anyone | 1 to 2 Allowances |
Married Couple with no dependents | 2 |
Head of Household with one dependent | 3 |
A married couple with one dependent | 3 |
A married couple with two dependent | 4 |
The employee in form W4 already fills details of claimed allowances. The employee must do a complete working before filling out the details for the number of allowances he/she needs to claim as dis-balance can cause him/her to overpay or underpay taxes.
|
||
---|---|---|
Situation | Effects on Federal Withholding Taxes | Consequences |
To many Allowances claimed | · Withholding Federal Tax decreases · Take-Home Pay Increases · The taxpayer may owe money to IRS | · Tax Payer has to pay the pending tax amount along with penalties |
Too few Allowances claimed | · Withholding Tax Federal increases · Take-Home Pay decreases · IRS may owe money to the taxpayer, for which | · Tax Payer is likely to receive a refund · Tax Payer may have less money to spend the whole year until the refund is received |
Details on how many allowances an employee must claim are provided here.
Once the final taxable income is calculated after subtracting all deductions (standard or itemized) and contributions, a certain amount is withheld by the employer from an employee's paycheck as federal income tax along with the two federal (FICA) programs: Social Security and Medicare.
This Federal Income Tax rate is applied at a gradual level, ranging from 0% to 37% of taxable earnings, depending on the filling status, number of Allowances claimed, and taxable income, so higher the income, higher the federal tax rate. These rates are as follow:
Taxable Income | Rate |
---|---|
$0 - $9,700 | 10% |
$9,700 - $39,475 | 12% |
$39,475 - $84,200 | 22% |
$84,200 - $160,725 | 24% |
$160,725 - $204,100 | 32% |
$204,100 - $510,300 | 35% |
$510,300+ | 37% |
Taxable Income | Rate |
---|---|
$0 - $19,400 | 10% |
$19,400 - $78,950 | 12% |
$78,950 - $168,400 | 22% |
$168,400 - $321,450 | 24% |
$321,450 - $408,200 | 32% |
$408,200 - $612,350 | 35% |
$612,350+ | 37% |
Taxable Income | Rate |
---|---|
$0 - $9,700 | 10% |
$9,700 - $39,475 | 12% |
$39,475 - $84,200 | 22% |
$84,200 - $160,725 | 24% |
$160,725 - $204,100 | 32% |
$204,100 - $306,175 | 35% |
$306,175+ | 37% |
Taxable Income | Rate |
---|---|
$0 - $13,850 | 10% |
$13,850 - $52,850 | 12% |
$52,850 - $84,200 | 22% |
$84,200 - $160,700 | 24% |
$160,700 - $204,100 | 32% |
$204,100 - $510,300 | 35% |
$510,300+ | 37% |
In addition to the Federal Income Tax, Employees are also subjected to FICA Tax (Federal Insurance Contributions Act). These taxes are used for helping American citizens with retirement, disability, survivorship, and medical treatment which comprises:
A total of 12.4% of FICA tax is paid for Social Security, by both employee and employer. Here 6.2% is paid by Employee and remain 6.2% is funded by the employer. However, the Social Security tax is only applicable to the first $132,900 (in 2019) earned. No amount is charged above this earning,
1.45 percent each is paid to Medicare by both employee and employer. Moreover, if the taxpayer (employee or employer) earns more than $200,000 as a single filer or $250,000 as a married couple than additional Medicare taxes of 0.9% are to be paid.
Note: If you are calculating your federal taxes as an employer, you have to add FUTA unemployment taxes in addition to FICA taxes, which is 6% of the first $7,000 of each employees taxable income. However, if you pay full Alabama State Unemployment Taxes on time, then you can avail tax credit of up to 5.4%.
Some points related to Federal Withholdings Taxes for Alabama State:
All the employees in Alabama, who receive or income during the year, are subjected to Alabama State Tax. This amount is withheld from each employee's paycheck by the employer.
The employer has to calculate the Alabama State Tax according to the form A4, filled by the employee while starting the job (the employee should update this form if significant life change occurs like marriage, divorce, etc.).
In Alabama, just three income tax rates and tax brackets are to be considered. They are as follow:
Alabama Taxable Income | Rate |
---|---|
$0 - $500 | 2.00% |
$500 - $3,000 | 4.00% |
$3,000+ | 5.00% |
Alabama Taxable Income | Rate |
---|---|
$0 - $1,000 | 2.00% |
$1,000 - $6,000 | 4.00% |
$6,000+ | 5.00% |
|
|
---|---|
Alabama Taxable Income | Rate |
$0 - $500 | 2.00% |
$500 - $3,000 | 4.00% |
$3,000+ | 5.00% |
Alabama Taxable Income | Rate |
---|---|
$0 - $500 | 2.00% |
$500 - $3,000 | 4.00% |
$3,000+ | 5.00% |
Like, Federal Tax allowances, the Alabamian employee can also claim Alabama State Allowances, according to the filing status.
|
|
---|---|
Filing Status | Exemption Amount |
Single | $1500 |
Married Filing Separately | $1500 |
Married Filing Jointly | $3000 |
Head of Family | $3000 |
In addition to Alabama State Taxes, the employees are also subjected to pay local income taxes (Occupational Taxes) on the Gross Wage (not your taxable income), ranging from 0 to 2%. However, these local tax deduction amounts can be decreased if your particular city, county, or area offers any allowances.
Exact Rates are as follow:
City | Occupational Tax Rate |
---|---|
Attalla | 2.00% |
Auburn | 1.00% |
Bear Creek | 1.00% |
Bessemer | 1.00% |
Birmingham | 1.00% |
Brilliant | 1.00% |
Fairfield | 1.00% |
Gadsden | 2.00% |
Glencoe | 2.00% |
Goodwater | 0.75% |
Guin | 1.00% |
Hacklebug | 1.00% |
Haleyville | 1.00% |
Hamilton | 1.00% |
Irondale | 1.00% |
Leeds | 1.00% |
Lynn | 1.00% |
Midfield | 1.00% |
Mosses | 1.00% |
Opelika | 1.50% |
Rainbow City | 2.00% |
Red Bay | 0.50% |
Shorter | 1.00% |
Southside | 2.00% |
Sulligent | 1.00% |
Tuskegee | 2.00% |
Other Deductions by Alabama State:
Although employees are not charged any post-tax deductions. However, they can choose some post-tax contributions and benefits. If an employee has opted some, then its employer's duty to account them into the employee's paycheck.
Some of the common Post-Tax Contributions are:
Once you have calculated all the details, as discussed above, then it's time to enter all your details into our Alabama Paycheck Calculator and deduce the paycheck amount instantly.
Answer: The percentage taken out of your paycheck in Alabama range from 2% to 5%, exactly depending on factors like taxable income, filing status, and number of Allowances claimed.
Answer: The average annual wage is over $39,000 in Alabama.
Answer: The overtime in Alabama is taxed the same as regular hours. However, in some circumstances, your overall taxable income, including overtime wage, increases enough to be included in a higher tax bracket than your Federal Tax and Alabama State Tax rate will increase accordingly.
Answer: Yes, Alabama has a state income tax, with three tax brackets of 2%, 4%, and 5%. In addition to Alabama State Income Tax, you may also be charged with local tax (occupational taxes) depending on which city or county of Alabama, you live in.
Note: Occupational Taxes are discussed in detail in the above guide.