Alabama taxes

Alabama taxes personal income at 2% to 5%, and every filer can deduct the federal income tax they owe. A sole proprietor owes no separate business tax. LLCs and corporations fall under the business privilege tax, but for 2025 a privilege tax of $100 or less is exempt with no return to file, so most small businesses owe none of it. C corporations pay 6.5% corporate income tax, and every corporation pays a $10 annual report fee.

Personal income tax

Alabama residents file Form 40, due April 15, 2026, the same day as the federal return. You automatically get until October 15, 2026 to file, with no form needed. The rate is 2% on the first $500, 4% on the next $2,500, 5% on everything above $3,000 of taxable income. Married couples filing jointly get doubled steps: 2% on the first $1,000, 4% on the next $5,000, 5% on everything above $6,000. Single, head of family and married filing separately filers all use the first set.

What sets Alabama apart: every filer deducts the federal income tax they owe, whether or not they itemize. It is the largest deduction on most Alabama returns, so the 5% top rate costs less than it looks. Self-employment tax is not part of that deduction.

Return

Form 40

Due date

April 15, 2026, with an automatic extension to October 15, 2026

Rates

2%, 4%, 5%

Standard deduction, single

$3,000, stepping down to $2,500 once Alabama income passes $26,000

Standard deduction, married filing jointly

$8,500, stepping down to $5,000 once Alabama income passes $26,000

Standard deduction, head of family

$5,200, stepping down to $2,500 once Alabama income passes $26,000

Standard deduction, married filing separately

$4,250, stepping down to $2,500 once Alabama income passes $13,000

Personal exemption

$1,500 single or married filing separately, $3,000 married filing jointly or head of family

Dependent exemption

$1,000 each up to $50,000 of Alabama income, $500 up to $100,000, $300 above

Not taxed

Social Security, unemployment compensation, and defined benefit pensions in full

Age 65 and over

The first $6,000 of taxable retirement distributions is exempt for each person

Credits

All run through Schedule OC, and most must be reserved and approved before you can claim them

Sole proprietor

A sole proprietor with no LLC owes Alabama nothing at the business level. The business privilege tax does not reach you, and the Secretary of State annual report is for corporations only.

Your business profit is taxed on your own Form 40, at the personal rates above.

Single-member LLC

An LLC falls under Alabama's business privilege tax, which is charged on net worth rather than profit. For tax years starting after December 31, 2023, a privilege tax of $100 or less is fully exempt and needs no return, so most small LLCs owe and file nothing here. A larger LLC still owes it and still files.

Since January 1, 2024 there is no Secretary of State annual report for an LLC. The LLC's profit is taxed on your own Form 40.

Partnership

Every Alabama partnership files Form 65, the partnership return of income, by March 15 for a calendar year. The profit passes through to the partners, who report it on their own returns.

If any partner lives outside Alabama, the partnership must also file a composite return, Form PTE-C, and pay 5% of each nonresident partner's Alabama share on their behalf, by March 15.

The partnership also falls under the business privilege tax on net worth. It files Form PPT only when that tax comes to more than $100, so most small partnerships owe none of it.

S corporation

Every Alabama S corporation files Form 20S, due the 15th day of the third month after its tax year ends, so March 15 for a calendar year. The profit passes through to the shareholders, who report it on their own returns.

If any shareholder lives outside Alabama, the corporation must file a composite return, Form PTE-C, and pay 5% of that shareholder's Alabama share, unless the shareholder certifies on Form NRA that they paid their own Alabama tax.

It also pays a $10 annual report fee every year, whatever it earned. The business privilege tax on net worth is owed only above $100, filed on Form PPT, so most small S corporations owe none of it.

C corporation

A C corporation files Form 20C and pays corporate income tax at 6.5% of its Alabama taxable income. The return is due one month after the federal return, so May 15 for a calendar year. Alabama is one of very few states that lets a corporation deduct its federal income tax first, so the real rate is lower than 6.5%. A corporation selling into other states counts only its Alabama share, measured by Alabama sales over total sales.

It also owes the business privilege tax on net worth, at $0.25 to $1.75 per $1,000 of Alabama net worth and capped at $15,000, alongside the income tax rather than instead of it. It files Form CPT only when that tax is more than $100. The $10 annual report fee is owed every year.

Return

Form 20C, due May 15 for a calendar year

Corporate income tax

6.5% of Alabama taxable income

Multi-state profit

Alabama sales over total sales

Business privilege tax

$0.25 to $1.75 per $1,000 of Alabama net worth, capped at $15,000, no return needed at $100 or less

Annual report fee

$10 a year

Estimate your state tax

Pick your business type and enter this year's numbers to see the state business tax Alabama charges. It assumes all your sales are in Alabama.

An estimate for planning, not tax advice.

Sources

• Alabama Form 40 Booklet, 2025
• Alabama Form 40, 2025
• revenue.alabama.gov Notice: Important Changes to the 2024 Business Privilege Tax Filing Requirements
• revenue.alabama.gov Business Privilege Tax overview
• sos.alabama.gov Business Services: annual reports (corporations only from 1 January 2024)
• revenue.alabama.gov Form 65 Instructions (2024 edition, latest posted when checked 2026-09-24)
• revenue.alabama.gov Form 20S Instructions (2024 edition, latest posted when checked 2026-09-24)
• revenue.alabama.gov Form 20C Instructions (2024 edition, latest posted when checked 2026-09-24)
• revenue.alabama.gov Form PTE-C and PTE-CK1 Instructions (2024 edition)
• revenue.alabama.gov Corporate Income Tax
• revenue.alabama.gov Corporate Income Filing Requirements
• revenue.alabama.gov Business Privilege Tax, and the 2025 PPT instructions

Last reviewed August 2026.