How Alabama taxes retirement income

Alabama computes its own gross income (Form 40), not federal AGI. Key retiree feature: a deduction for FEDERAL INCOME TAX paid (Form 40 line 12, via the Federal Income Tax Deduction Worksheet: federal tax liability after credits, less certain refundable credits) is subtracted from Alabama AGI along with the standard/itemized deduction and personal exemption; Taxtirement must feed federal tax into the Alabama calc. Standard deduction is AGI-tested (chart on Form 40 instructions page 9; amounts above are the maximums): single $3,000 at AL AGI <= $25,999, reduced $25 per $500 of AGI to $2,500 at $35,500+; joint $8,500 reduced $175 per $500 to $5,000 at $35,500+; MFS $4,250 reduced $88 per $250 from $13,000 to $2,500 at $17,750+; head of family $5,200 reduced $135 per $500 to $2,500 at $35,500+. Personal exemption: $1,500 single/MFS, $3,000 joint or head of family (entered per return, not per person: joint = $3,000 total). Dependent exemption $1,000/$500/$300 by AGI (not relevant to retirees). Rates set by Code of Ala. 40-18-5 (not indexed; unchanged for decades). Tax for income <= $100,000 must come from the Tax Table ($50 midpoint rows); above $100,000 the official worksheet is: single/MFS/HoH $4,958 + 5% of excess over $100,000; joint $4,918 + 5% of excess over $100,000 (these constants are $2 below a pure bracket computation because they carry the table's midpoint convention). Age for the $6,000 exclusion: statute says 'individual taxpayers who are 65 years of age or older'; Schedule RS asks 'Is the primary taxpayer [spouse] 65 or older'. Early IRA distributions are taxed like federal; Alabama has no separate penalty tax. Alabama allows its own itemized deductions (Schedule A) including medical over 4% of AL AGI.

• 2026 Form 40 booklet not yet published (as of 2026-10-02; expected January 2027 at https://www.revenue.alabama.gov/individual-corporate/forms/). Rates, standard deduction chart and exemptions are statutory and unindexed; the 2026 withholding booklet (Jan 13, 2026) prints the same standard-deduction chart ($3,000/$8,500/$4,250/$5,200 maxima, $25 / $175 steps per $500 over $25,999) and the $3,000 married / $1,500 single exemptions, and 2025 HB 389 (higher standard deduction) was not enacted, so 2026 = 2025.
• Age-65 test date for the $6,000 exclusion (whether 65 by Dec 31 of the tax year) is not stated explicitly in the statute or 2024 Schedule RS; assumed 65 by year end.
• Whether the taxable portion of a Roth conversion qualifies for the $6,000 exclusion is inferred from the Form 40 instructions requiring taxable Roth conversions to be reported on Schedule RS Part II/III (the line the exclusion is taken against); no explicit ADOR statement found.
• 2026 Schedule RS not yet released (expected January 2027); $6,000 assumed. 2025 HB 388 ($12,000 exclusion from 2026) died: last action 5/1/2025 Senate second reading, never passed (Alabama Legislature bill page, https://beta.alaleg.gov/legislation/HB388-2025RS). No 2026-session bill raising it was found (searched; the 2026 income tax acts found were Act 2026-551 Trump accounts and the National Guard exemption).
• Local occupational tax list/rates not researched from primary sources; only the wages-only base matters for retirees.