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Your Ultimate Guide to US Payroll in Alabama

Managing payroll in Alabama? Read our state-by-state guide to US payroll taxes to learn what you must withhold and deduct from employee wages.

Shannon Hodgen
Written by Shannon Hodgen
July 17, 2023
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Key takeaways

  1. Employers must pay unemployment insurance in the state of Alabama.
  2. Personal income tax must be deducted from the employee’s wages and withheld by the employer.
  3. Alabama employers do not need workers’ compensation coverage until they have five or more employees in the state.

Employers have to navigate a variety of regulations and requirements to ensure proper payroll withholding in each US state. This guide serves as an introduction to what employers need to pay and withhold from payroll in Alabama, including unemployment insurance, personal income tax, and workers' compensation. 

Paying unemployment insurance 

On top of withholding federal taxes such as Medicare and Social Security, employers are responsible for withholding and paying certain Alabama state taxes from employees’ payroll. These taxes are referred to as employer payroll taxes or payroll withholding. One of the taxes employers must pay is unemployment insurance (UI).

Unemployment insurance is a national program administered by the US Department of Labor. The program provides temporary payments to people who are unemployed through no fault of their own. You can manage your Alabama unemployment insurance through an online portal. For more information on paying your unemployment insurance, refer to the Alabama Department of Labor.

Withholding personal income tax from your Alabama employee 

Employers are also responsible for withholding personal income tax from their employee’s payroll. Personal income tax, also known as individual income tax or state income tax, is a tax on the income of Alabama residents. The tax is deducted from the employee’s wages and is withheld by the employer. 

After you withhold the tax from your employee, you are responsible for paying the amount you withheld to the state. You can file and pay the withholding amount online. For more information on paying the withholding amount, refer to the Alabama Department of Revenue.

Paying Alabama workers’ compensation

In addition to paying Alabama payroll taxes, employers also need to pay for workers’ compensation. Unlike most other states, Alabama does not require employers to have workers’ compensation coverage until they have five or more employees in the state.

Workers’ compensation is a type of insurance that covers wages and medical benefits for employees who are injured while performing their job. The state of Alabama provides information online to help you find a qualified commercial carrier. Employers should verify their workers’ compensation insurance is compliant with the state’s regulations for workers’ compensation.

Simplify US payroll tax compliance with Deel

While this guide provides essential information on Alabama payroll taxes, payroll compliance and state requirements extend beyond what is covered above. To streamline the process and ensure full compliance, companies can turn to Deel. 

Deel offers a comprehensive solution for managing US and international payroll, including payments, taxes, worker classification, and more. Speak with an expert today to see how you can streamline your US payroll processes and ensure compliance with state regulations.

Disclaimer: This article is provided for general informational purposes and should not be treated as legal or tax advice. Consult a professional before proceeding.

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