Payroll tax in Alabama: What employers need to know [Updated 2026]
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Albert Einstein didn't mince words when it came to taxes, describing them as the hardest thing in the world to understand. He wasn't wrong. And if you're a business owner in the state of Alabama, you'll need to figure out US and state taxes. Not only do you have to deal with Federal Insurance Contributions Act (FICA) requirements like Medicare taxes and Social Security, but there are also state and local payroll taxes to consider. These taxes vary from state to state, so it's vitally important to understand the tax regulations where your workers reside.
Alabama uses a progressive tax system, which gives it added complexity. As your employees' income increases, their tax rates will rise accordingly, leading to increased tax liability. If your business is thriving and you're bringing on more staff, your employer tax contributions will increase, as will the amount you must deduct from your employees' paychecks.
It doesn't matter if you're managing a large global operation with thousands of employees or a small business with just a few workers — you must understand the state and federal payroll taxes: who they apply to, what the rates are, and when they need to be filed. Here's what you need to know for 2026.
The 2 Alabama payroll taxes
The responsibility for overseeing state-level payroll taxes falls under the jurisdiction of the Alabama Department of Revenue (ALDOR). Employers in Alabama are required to pay taxes on all employees. You must register new hires with ALDOR within seven days of their employment or recall. There is a $25 fine for failing to report on time.
State unemployment insurance tax (SUI)
The Alabama State Unemployment Insurance (SUI) tax is an employer-paid tax designed to finance temporary unemployment benefits for people who find themselves unemployed due to no fault of their own, like layoffs. In 2026, Alabama's SUI taxable wage base is $8,000 per employee. Rates and taxable wages are determined by the Department of Labor on an annual basis. New employers pay 2.7% for at least a year, and subsequent rates are determined by an employer's experience rating, which is based on their unemployment claims history and taxes paid. Rate notifications are typically available in December.
Under the Federal Unemployment Tax Act (FUTA), Alabama employers are required to pay both federal and state unemployment taxes.
Who pays | Employer |
|---|---|
Tax rate | 2.7% for new businesses 0.2% to 6.8% for established businesses - actual rate customized to each business |
Taxable wage limit | First $8,000 per employee, per year |
Maximum tax | $544 |
State withholding tax
Alabama's state withholding tax is used to fund a variety of programs and services in the state, including public safety, healthcare, and education. Employers withhold this tax from their employee's pay and remit it to the Alabama Department of Revenue. Employees must fill out an Employee's Withholding Tax Exemption Certificate (Form A-4, the state version of IRS Form W-4) so that the employer can calculate state income tax withholding correctly.
Who pays | Employee |
|---|---|
Tax rate | 2%-5% |
Taxable wage limit | No limit |
Maximum tax | No maximum |
Employers can determine the amount of an employee's withholding tax by using one of two methods:
Method A uses wage tables to figure out the amount to withhold. The tables are based on the pay period, filing status, number of dependents, exemptions, and adjusted gross income.
Method B is more complex and utilizes a formula that calculates the correct amount based on wages, filing status, number of dependents, and exemptions. This method should be used by employers using a computer program for these calculations. It must be used if the employee's number of dependents or salary exceeds the amounts listed in the tables.
You can find the current tables and formula worksheet in Alabama's employer withholding resources. Note that some jurisdictions levy local taxes. It's important to know if you or any of your employees are subject to these taxes.
Running the payroll process in Alabama can be difficult. You need to be familiar with ever-changing tax regulations and know your way around tax tables and stacks of federal and state tax forms. You'll likely face angry employees and compliance penalties if you don't get it right. But Rippling's payroll compliance software makes running payroll a breeze. Rippling crunches the numbers automatically, calculates your taxes, and files your tax documents and payments for you — while keeping up to date with federal income tax and Alabama state tax laws, so you're always compliant. Rippling's PEO offers the capability to register and maintain your state tax accounts on your behalf, streamlining and automating more of the payroll tax procedure.
Payroll tax due dates in Alabama
Employers in Alabama must file a Quarterly Contribution and Wage Report with the Department of Labor using the eGov (Electronic Government Services) website. Reports are due the last day of the month following the end of the quarter:
First quarter (January-March) deadline: April 30 Second quarter (April-June) deadline: July 31 Third quarter (July-September) deadline: October 31 Fourth quarter (October-December) deadline: January 31
Missing the above deadlines can result in a fine of $25 or 10% of taxes owed, whichever is greater.
How to submit payroll taxes in Alabama
Now that you're up to speed with the taxes you have to collect and when you have to pay them, the next step is to file them. Alabama employers remitting payments over $750 must use the Department of Revenue's electronic system — My Alabama Taxes (MAT).
Enroll in My Alabama Taxes (MAT)
Alabama's Department of Revenue's My Alabama Taxes makes it easy for employers to manage their payroll taxes and more. You can:
Register a business or obtain a new tax account number.
View or upload a report.
Verify an exemption certificate.
Sign a business tax return.
Make payments.
Visit the My Alabama Taxes website to enroll and use their services.
File by mail
Most documentation and remittances have to be filed online through MAT. However, there are a few cases where you can still file some documents and small payments by mail. You'll find a complete list, along with specific postal addresses, on the Alabama Department of Revenue's website.
Other payment options
Electronic Funds Transfer (EFT)/Automated Clearing House (ACH): ALDOR accepts EFT/ACH payments for all types of tax. ACH Credit must be pre-approved by ALDOR.
Credit Cards are accepted via MAT.
Rippling's full-service payroll software
Rippling's payroll software offers a powerful solution to running payroll in Alabama. It automatically calculates and files your payroll taxes with the right federal, state, and local agencies—so you never have to worry about compliance or deadlines. Rippling keeps pace with Alabama's annual SUI rate changes automatically, and with Rippling's PEO, you can have Rippling register and maintain your Alabama state tax accounts on your behalf.
Frequently Asked Questions
Are there local tax laws in Alabama?
Yes. Alabama is one of the US states that permits municipalities to collect an income tax. These are known as “occupational taxes” and apply to employers with employees who live and/or work in a taxed location. The rate varies depending on the municipality. People who work in Birmingham but are non-residents pay an occupational tax of 1% of their gross pay. Bessemer’s local income tax rate is also 1% of taxable income. The employer usually withholds the tax.
What is Alabama's state income tax rate?
Alabama uses a progressive income tax with three brackets. For single filers: 2% on the first $500, 4% on the next $2,500, and 5% on income above $3,000. For married filing jointly: 2% on the first $1,000, 4% on the next $5,000, and 5% above $6,000. These rates are unchanged for 2026. Employers use the employee’s Form A-4 (Alabama’s version of the W-4) to determine how much to withhold, taking into account filing status, number of dependents, and any additional withholding requested. Alabama does not have a standard deduction in the same form as the federal system, though personal exemptions apply.
What is Alabama's SUI taxable wage base for 2026?
Alabama's SUI taxable wage base is $8,000 per employee in 2026—meaning employers pay state unemployment insurance tax on the first $8,000 of each employee's annual wages, and no SUI is owed on wages above that limit. This wage base has remained stable for several years. New employers pay 2.7% on wages up to this limit for at least a year. Experienced employers receive an annual rate notice from the Alabama Department of Labor based on their unemployment claims history; rates for experienced employers range from 0.20% to 6.80%. SUI taxes must be filed and paid quarterly via the eGov portal.
Disclaimer
Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.
Author
Vanessa Kahkesh
Content Marketing Manager, HR
Vanessa Kahkesh is a content marketer for HR passionate about shaping conversations at the intersection of people, strategy, and workplace culture. At Rippling, she leads the creation of HR-focused content. Vanessa honed her marketing, storytelling, and growth skills through roles in product marketing, community-building, and startup ventures. She worked on the product marketing team at Replit and was the founder of STUDENTpreneurs, a global community platform for student founders. Her multidisciplinary experience — combining narrative, brand, and operations — gives her a unique lens into HR content: she effectively bridges the technical side of HR with the human stories behind them.
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