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Summary of differences between federal and state regulations
Income tax withholding
Wages subject to Alabama withholding tax: For Alabama withholding tax purposes, the terms “employer,” “employee,” and “wages” have the same meaning as defined in the Internal Revenue Code except when the Alabama law is in conflict with Federal law. Wages for Alabama withholding tax purposes shall include those wages exempt from federal withholding if the wages represent taxable income under the Alabama income tax law and there is no provision under the Alabama law for a deduction corresponding to the allowable federal deduction.
Wages means all remuneration received for services performed by an employee for an employer. This includes cash or the cash value of all remuneration, including benefits, paid in mediums other than cash. If the Internal Revenue Service has determined that a particular remuneration or benefit is wages for federal purposes, this remuneration is considered wages for Alabama purposes unless this item is specifically exempt by Alabama law.
The Internal Revenue Service exempts certain classes of employment from withholding tax. Classes of employment exempt for federal purposes are also exempt for Alabama purposes. The chief classes of exempt employment are domestic services in private homes, merchant seamen, duly ordained ministers performing duties of their ministry, and agricultural employees.
Alabama does not recognize the federal requirement to withhold income tax on cash payments to agricultural employees where the payments are considered wages for social security purposes and FICA withholding is required.
Public Law 91-569 provides an exemption from Alabama withholding tax for employees of water and air carriers if the employee is not a resident of Alabama or if he did not earn over 50% of his income in Alabama the previous year.
Public Law 101-322 provides that employees of an interstate railroad and employees of an interstate motor carrier who work in two or more states must be taxed on the state of their residency.
Employers required to withhold: An employer who is a resident of Alabama is required to withhold tax from the wages of his employees who are residents of Alabama, regardless of whether the wages are earned in Alabama or outside the state; except when the employer is withholding tax for the state in which the employee is working, he is not required to withhold tax for Alabama. (Example: If an employer and an employee are both residents of Alabama and the employee is working in Georgia, the employer would not be required to withhold Alabama income tax because he is withholding Georgia income tax. If the same employee were working in Florida, the employer would be required to withhold Alabama income tax because both the employer and employee are residents of Alabama and Florida has no individual income tax.)
An employer who is a resident of Alabama is required to withhold tax from the wages of his employees who are not residents of Alabama only to the extent that the wages are earned in Alabama. In other words, a nonresident employee of an Alabama employer should have Alabama income tax withheld only on wages earned in Alabama.
An employer who is not a resident of Alabama is required to withhold tax from the wages of his employees to the extent that such wages are earned in Alabama, whether the employee is a resident or a nonresident of Alabama. A nonresident employer is not required to withhold Alabama income tax on wages paid for services performed outside of Alabama, whether such wages are paid to a resident or a nonresident of Alabama.
If an employer/employee relationship exists for federal purposes, this relationship also exists for Alabama purposes. An employee cannot claim to be an independent contractor for Alabama purposes and therefore exempt from Alabama withholding tax unless he has met the federal guidelines for being an independent contractor.
For questions concerning employee/independent contractor status, you should contact the Internal Revenue Service for help in determining what type relationship exists.
Unemployment taxes
All states finance UC primarily through contributions from subject employers on the wages of their covered workers. In addition, three states (Alaska, New Jersey, and Pennsylvania) collect contributions from employees. These taxes are deposited by the state to its account in the UTF in the Federal Treasury, and are withdrawn as needed to pay benefits.
Many states have adopted a higher tax base than what is provided in FUTA. Hawaii's wage base is usually higher and changes periodically. In all states, an employer pays a tax on wages paid to each worker within a calendar year up to the amount specified in state law. In addition, most of the states provide an automatic adjustment of the wage base if federal law is amended to apply to a higher wage base than that specified under state law. As a result of the many variables in states taxable wage bases and rates, benefit formulas, and economic conditions, actual tax rates vary greatly among the states and among individual employers within a state.
Wages subject to unemployment tax in Alabama are $8000.
Minimum and maximum rates in Alabama are 0.44 and 6.04 %. Rates apply to experience rated employers only and do not include applicable surtaxes or penalties.
Reemployment Act of 2010
For tax years 2011 and 2012, an Alabama income tax deduction is available for employers that create new jobs for unemployed persons. The deduction is 50 percent of the gross wages paid to each person hired by an employer who, at the time of such employment, was drawing unemployment compensation or whose unemployment benefits had expired. The deduction is limited to wage rates $14 per hour and above; a 40 percent deduction would be granted for wage rates between $12 and $14 per hour; a 35 percent deduction would be granted for wage rates between $10 and $12 per hour. No deduction would be granted for jobs paying less that $10 per hour. No deductions would be granted for less than full time jobs (37.5 hours).
State
ContactsIncome tax withholding
Department of Revenue
Unemployment taxes
Department of Industrial Relations
RegulationsIncome tax withholding
Article 2 Withholding Tax 810-3-70 through 810-3-84
Unemployment taxes
Alabama UC Law
Federal
ContactsInternal Revenue Service
Regulations Title 26 Code of Federal Regulations, Internal Revenue