Alabama Payroll Tax Guide (2026)
Alabama withholding still runs on the same 2, 4 and 5% brackets it has used for years, while unemployment tax sits on Schedule A for 2026 with no shared cost added, so most employers pay between 0.20 and 5.40% on the first $8,000 per worker.[5]
Alabama payroll at a glance
Alabama runs two state payroll taxes: graduated income tax withholding that comes out of employee pay, and unemployment insurance contributions plus a small assessment that employers fund entirely on the first $8,000 of wages.[5]
What changed for Alabama payroll in 2026
Six items moved for Alabama employers this year. Anything below is what have changed since the 2025 tables, so a rate card carried over from last year will be wrong in at least one place.
2026 Alabama payroll tax calculator
Enter one employee’s annual gross wages to see what the employer owes, what comes out of the paycheque, and the true cost of employment.
Employer pays
Withheld from the employee
State income tax withholding is not included above: it depends on the employee’s Form A-4, Employee’s Withholding Exemption Certificate and filing status, so it cannot be estimated from gross pay alone.
Payroll tax rates & the nexus question
Alabama runs three state payroll taxes. The table below is the whole state layer for 2026.[5]
The state payroll taxes
| Tax | Paid by | 2026 rate | Wage base |
|---|---|---|---|
| UI | Employer | 0.20%–5.40%; 2.70% new | $8,000 |
| Employment Security Enhancement Assessment | Employer | 0.06% | $8,000 |
| Income tax withholding | Employee | 2.00%–5.00% | No limit |
Schedule A applies for 2026 and shared cost stays at 0.00%, per the Alabama Department of Labor 2025 Annual Report. Alabama maintains four schedules and picks one each year from statewide experience.[5]
Supplemental wages have their own rate. Bonuses, commissions and other supplemental payments are withheld at 5.00% when paid separately from regular wages. That is a state rate only; federal supplemental withholding is a separate 22% layer.[2]
Who has to register
A non-farm employer becomes liable after paying $1,500 or more in wages in any calendar quarter, or after having one or more workers on some day in 20 or more different weeks. Household employers are liable at $1,000 of cash wages in a quarter. Agricultural employers are liable at $20,000 of wages in a quarter or 10 or more workers in 20 different weeks.[5] Income tax withholding is administered separately by Alabama Department of Revenue, so most employers end up with two state account numbers, not one.
Multistate and remote employees
When an employee works in more than one state, the four-part test below decides which state the wages are reported to. The tests run in order: you stop at the first one that gives an answer.
- 1. Localisation of service→
- 2. Base of operations→
- 3. Place of direction & control→
- 4. Employee’s residence
One remote employee is usually enough. A single person working from home in Alabama generally creates an obligation to register and report wages here, even if the business has no office, property or customers in the state.
Confused by Alabama’s payroll withholding & filing rules?
We handle registration, filings, and year-end forms so your team runs payroll without the guesswork.
Ask a Payroll SpecialistRegistration & return filing
Registration is online and free. The unemployment account and, where one exists, the withholding account are opened separately and carry different numbers.[5]
How to register
- Cross the wage threshold→
- eGov→
- Receive account number→
- Tax Rate Notice, Form UC-216→
- File & deposit online
A non-farm employer becomes liable after paying $1,500 or more in wages in any calendar quarter, or after having one or more workers on some day in 20 or more different weeks. Household employers are liable at $1,000 of cash wages in a quarter. Agricultural employers are liable at $20,000 of wages in a quarter or 10 or more workers in 20 different weeks.[5]
Deposit schedule
Monthly returns are required of any withholding agent that withheld more than $1,000 in either the first or the second month of a quarter. Everyone below that files quarterly. Any single withholding payment of $750 or more must be filed and paid electronically.[2]
Returns, reports & due dates
| Form | What it is | Due |
|---|---|---|
| Quarterly Contribution and Wage Report, filed online through eGov | Quarterly unemployment return | April 30, July 31, October 31, January 31 |
| Form A-6 monthly, Form A-1 quarterly, and Form A-3 annual reconciliation filed with… | Income tax withholding returns | Monthly returns are required of any withholding agent that withheld mo |
| Annual reconciliation | Year-end withholding reconciliation | January 31 |
| Form 941 | Federal quarterly return | Last day of the month after quarter end |
| Form 940 | Federal unemployment, annual | January 31 |
| New hire report | Report of newly hired employees | Within 20 days of start date |
Quarterly unemployment returns are due April 30, July 31, October 31, January 31. A return filed one day late is delinquent, and in most states the penalty attaches to the return, not the payment.[5]
Payroll Pricing
Simple, transparent pricing, no setup fees, no year-end surprises. One flat charge per pay run.
CROWNGLOBE
extra
extra
extra
extra
Subject wages vs. exempt payments
Not every dollar an employee receives is a taxable wage. The split below governs what goes into the unemployment wage base and what is reported at year end.[5]
Subject wages
- Salaries, hourly pay, overtime and piece rates
- Commissions, bonuses and incentive pay
- Most cash tips reported by the employee
- Vacation, holiday and paid sick leave when taken as wages
- Severance and payments in lieu of notice
- The cash value of meals and lodging provided as compensation
- Employer contributions to a non-qualified deferred compensation plan
Not subject
- Reimbursements of genuine business expenses under an accountable plan
- Employer contributions to a qualified retirement plan
- Employer-paid premiums for accident and health insurance
- Most third-party sick pay after the sixth calendar month
- Payments to a genuine independent contractor
- Workers compensation benefits
The wage base is per employer, per year, not per job. If you hire someone in August who already earned $8,000 elsewhere, your unemployment clock still starts at zero. The one exception is a successor employer taking over an existing payroll, who inherits the wages already paid.
Glossary of key terms
- Taxable wage base
- The slice of each employee’s annual pay that unemployment tax is calculated on. In Alabama that is $8,000 for 2026. Earnings above it are still wages, they are simply no longer taxed for unemployment.
- Experience rating
- The method Alabama Department of Labor uses to set each employer’s own unemployment rate from its history of claims. Employers with fewer charged claims move down the schedule; those with more move up.
- New employer rate
- The rate assigned before an employer has enough history to be experience rated. It normally applies for two to three years, then the account moves onto the experience schedule.
- Form A-4, Employee’s Withholding Exemption Certificate
- The state withholding certificate. It sets how much income tax comes out of each cheque and is filed with the employer, not with Alabama Department of Revenue.
- Reserve account
- The running balance of contributions an employer has paid in, less the benefits charged against it. The ratio of that balance to taxable payroll is what drives the assigned rate.
- Successor employer
- A business that acquires another’s payroll may inherit both its experience rate and the wages already paid toward the wage base for the year. Getting this wrong is a common acquisition error.
- Localisation of service
- The first of four tests deciding which state a multistate employee’s wages are reported to. If substantially all the work is in one state, that state wins and the remaining tests are never reached.
- FUTA credit reduction
- A reduction in the 5.4% federal unemployment credit applied to states that have carried an outstanding federal loan for two or more consecutive Januaries. It raises the effective FUTA rate and is settled each November.
- Supplemental wages
- Bonuses, commissions, awards and similar payments made outside the regular payroll cycle. Many states set a separate flat withholding rate for them.
- Local withholding
- Income or occupational tax levied by a city, county or school district and withheld by the employer alongside state tax. It is assessed separately from the state layer.
Alabama payroll tax, layer by layer
Federal tax applies everywhere and is the larger number. The state layer is what changes when you cross a border.
Layer 1: Federal
| Tax | Rate | 2026 base |
|---|---|---|
| Social Security | 6.2% each side | $184,500 |
| Medicare | 1.45% each side | No limit |
| Additional Medicare | 0.9% employee only | Over $200,000 |
| FUTA, standard | 0.6% net | $7,000 |
| Federal income tax | Per Form W-4 | No limit |
Alabama has no FUTA credit reduction for 2026, so the standard 0.6% net rate applies, $42 per employee. The final list is not published until 10 November 2026.[12]
Layer 2: State
| Tax | Rate | 2026 base |
|---|---|---|
| UI, new employer | 2.70% | $8,000 |
| UI, experienced | 0.20%–5.40% | $8,000 |
| Employment Security Enhancement Assessment | 0.06% | $8,000 |
| Income tax, standard | 2.00%–5.00% | No limit |
| Income tax, supplemental | 5.00% | No limit |
Layer 3, county & city: a real third layer
Alabama has no county or city income tax, but a number of municipalities levy an occupational license tax on wages earned inside the city limits. Employers withhold it and file with the municipality or its billing agent rather than with the state. Birmingham, for example, takes occupational tax returns and payments through its own Tax and License Division.[14]
The state minimum wage is $7.25 an hour, which is the federal floor, effective 2009-07-24. The tipped cash wage is $2.13. No local ordinance sets a higher floor. Alabama has no state minimum wage law and no local minimum wage in force, so the federal rate governs every covered employer statewide.[9]
Overtime exemption is a separate test. A salaried employee is exempt from overtime only above $35,568 a year ($684.00 a week) federal FLSA, and only if the duties test is also met. Paying a salary is not by itself enough.[13]
Alabama payroll FAQs
Alabama lets employers withhold on bonuses and other supplemental wage payments at a flat 5%, which is the top marginal rate. The withholding booklet frames that as an option rather than a requirement, so adding the bonus to regular wages and running the tables is also acceptable. Pick one method and apply it consistently across the year.
Alabama moves you to monthly Form A-6 filing once you withhold more than $1,000 in either the first or the second month of a quarter. Below that threshold you stay on the quarterly Form A-1. Monthly returns are due between the 1st and the 15th of the month after the withholding month, and quarterly returns are due by the last day of the month after quarter end.
No. The exemption that removed overtime wages from Alabama withholding expired on 30 June 2025, so withhold normally on overtime throughout 2026. What replaced it is Act 2026-604, a deduction of up to $1,000 that the employee claims on the individual return. Your job as employer is to report the overtime premium in W-2 Box 12 under code TT, which does not change wages or withholding on the W-2.
It is an assessment on the same first $8,000 of wages that unemployment tax applies to. Alabama does not add it on top of your experience rate. ADOL reduces all rates by 0.06% and then shows your rate and the assessment as separate items on Form UC-216 that combine back into your total rate.
New employers pay 2.70% on the first $8,000 of each worker’s wages. You keep that rate until you have enough benefit charge history to be experience rated. After that your rate is computed from benefit charges and taxable payroll over the three most recent complete fiscal years, each running 1 July to 30 June.
No. Alabama has never enacted a state minimum wage, so covered employers follow the federal rate of $7.25 an hour, with a tipped cash wage of $2.13 and a maximum tip credit of $5.12. No Alabama city sets a minimum wage that is currently in force either, so the same figures apply everywhere in the state.
$8,000 per employee per calendar year. Once an employee reaches that in wages from you, no further unemployment tax is due on that employee for the rest of the year. The count restarts on 1 January and does not carry over from a previous employer.
$7.25 an hour, which matches the federal floor. No local ordinance sets a higher rate. The tipped cash wage is $2.13.
April 30, July 31, October 31, January 31. A return is delinquent the day after the deadline even if the tax itself was paid on time, so file the return whether or not you can pay.
Sources & methodology
- Alabama Department of Revenue – Withholding Tax
- Alabama Department of Revenue – Withholding Tax Tables and Instructions for Employers and Withholding Agents (January 2026)
- Alabama Department of Revenue – Overtime Premium Deduction (Act 2026-604)
- Alabama Department of Revenue – Overtime Exemption
- Alabama Department of Labor – Unemployment Compensation Employer Information
- Alabama Department of Labor – Employer Information
- Alabama Department of Labor – 2025 ADOL Annual Report
- Alabama Department of Revenue – Unemployment Compensation Tax
- U.S. Department of Labor, Wage and Hour Division – State Minimum Wage Laws
- U.S. Department of Labor, Wage and Hour Division – Minimum Wages for Tipped Employees
- U.S. Department of Labor, Employment and Training Administration – Significant Provisions of State Unemployment Insurance Laws, January 2026
- Federal Register, U.S. Department of Labor – Notice of the Federal Unemployment Tax Act (FUTA) Credit Reductions Applicable for 2025
- U.S. Department of Labor, Wage and Hour Division – Fact Sheet 17A: Exemption for Executive, Administrative, Professional, Computer and Outside Sales Employees
- City of Birmingham, Alabama – Tax and License Division
Need help with Alabama payroll compliance?
CrownGlobe runs payroll for U.S. businesses in every state, registration, withholding, filings, and year-end forms.
Running payroll in more than one state?
Alabama alone means its own registration, its own deposit calendar and its own year-end reconciliation. Add a second state and the work compounds rather than doubles. CrownGlobe runs multistate payroll end to end: registration, deposits, quarterly returns and year-end.
Explore payroll processing services →Browse all state payroll guides →
Book a free consultation →