Local Occupational Taxes in Alabama
From Tax Guide.
Tax Guide · Arab, Alabama
Alabama Withholding and Unemployment Tax for Employers
Alabama employers withhold state income tax, pay state unemployment tax and report new hires. Learn what to expect and where to check the current rules.
The short answer
What state payroll taxes do Alabama employers deal with?
Alabama employers generally deal with three state-level items on top of federal payroll taxes: income tax withholding, state unemployment tax and reporting new hires.
These sit alongside the federal payroll taxes you already handle, such as those reported on the quarterly Form 941. State rules are separate from federal rules, and they can change, so a business that only follows the federal calendar can miss a state deadline.
This page is a general orientation. Alabama has its own rules, and we check how they apply to your business before you rely on any of it.
Income tax
Do Alabama employers have to withhold state income tax?
Yes, employers generally withhold Alabama income tax from employee wages and send it to the Alabama Department of Revenue, in addition to the federal withholding.
Alabama has its own income tax, so what comes out of an employee's paycheck for the state is separate from the federal amount. Employees use a state form to tell the employer how much to withhold, much like the federal W-4. Our guide to W-2 and W-4 forms for employers covers the federal side.
Employers report and pay the withheld tax to the state on a schedule the state sets, and the Department of Revenue's online service, My Alabama Taxes, is where much of that filing takes place. Amounts withheld are reported to the employee and the state at year end.
Some Alabama cities and counties also have their own occupational taxes on wages, which are separate again. See local occupational taxes in Alabama.
Unemployment
How does Alabama unemployment tax work for employers?
Employers who meet the state's definition of an employer register with the state for unemployment insurance and pay state unemployment tax on employee wages.
Unemployment insurance is a joint state and federal program. Employers pay federal unemployment tax (FUTA) on Form 940, and in most cases they also pay state unemployment tax, which funds benefits for workers who lose jobs through no fault of their own. Employers who pay the state tax on time can usually claim a credit against the federal amount, which is one reason staying current matters.
The state assigns each employer a tax rate that is set under state law and can change from year to year. The wage base it applies to also changes. We do not quote those figures here because they are updated regularly. Ask us, or check with the state's workforce agency, for the current numbers.
Whether a worker counts as an employee for unemployment purposes is a common question. Our guide to employee or independent contractor explains the general tests.
New hires
Do I have to report new hires to the state?
Employers are generally required to report newly hired and rehired employees to the state within a short, set number of days.
New hire reporting exists mainly to help states find parents who owe child support and to detect unemployment fraud. Your report typically includes the employee's name, address and Social Security number, and your business name and tax number.
The reporting deadline and method are set by the state, so confirm them when you hire someone. Make it part of your hiring routine along with the tax forms. Our guide to hiring your first employee lists the usual steps in order.
Common questions
What should an Alabama employer keep track of?
Keep track of which returns are due, when, and to which agency, because federal, state and local schedules do not line up.
A calendar that lists every payroll deadline in one place prevents most late filings. Each time payroll runs, the same records feed several different reports.
- Federal deposits and quarterly returns for income tax withholding, Social Security and Medicare.
- Alabama income tax withholding reports and payments.
- State unemployment tax reports and payments, and the federal unemployment return.
- New hire reports for each person you add.
- Any city or county occupational tax that applies to your location.
How we can help
How Melton Tax Services can help with Alabama payroll taxes
Our payroll and bookkeeping service can help you keep state and federal payroll obligations straight.
We can help with payroll and the records behind it, and we check how Alabama's rules apply to your business. See our payroll and bookkeeping page. For the federal side, read payroll tax deposits and Form 941.
To talk about your business, contact us or call 256-586-4635. We serve Arab and the surrounding area. Please do not send Social Security numbers or documents through this website. Bring them by the office or call us.
Answers
Questions about alabama employer taxes
Do I pay Alabama withholding and federal withholding separately?
Yes. Federal income tax withholding and Alabama income tax withholding are separate amounts, reported and paid to different agencies. Both come out of the employee's wages.
Is Alabama unemployment tax taken out of my employees' paychecks?
Generally no. Unemployment tax is normally an employer expense. Alabama has its own rules, and we check how they apply to your business.
Do I report a new hire even if the person is part time?
Generally yes. New hire reporting applies to employees, and part-time workers are still employees. Confirm the state's current rules and deadline when you hire.
Where do I file Alabama withholding returns?
Much of the filing is done online through My Alabama Taxes, the Department of Revenue's online service. The state decides how often each employer files, so check your account or ask us.
Do household employers owe Alabama payroll taxes too?
They may. Household employers have federal obligations, covered in our guide to <a href="/guide/household-employer-and-nanny-taxes.php">household employer and nanny taxes</a>, and there can be state requirements as well. We check how the state rules apply.
What if I have fallen behind on state payroll filings?
Do not ignore it. Gather the notices, keep a copy of everything, and call the office. We can review what the state sent and explain your options.
Read next
Related reading
Payroll Tax Deposits and Form 941
From Tax Guide.
Hiring Your First Employee: Tax and Paperwork Guide
From Tax Guide.
Payroll Taxes Explained: FICA, Withholding and More
From Tax Guide.
Payroll and Bookkeeping
A service Melton Tax Services provides.
Melton Tax Services
Questions about your taxes or your business?
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