Your Ultimate Guide to Alabama Payroll Tax

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. 

Key Facts About Payroll Taxes in Alabama

• Federal Insurance Contributions Act (FICA): includes Medicare and Social Security taxes.
• Progressive Tax System: Alabama's tax rates rise with income.
• Employer Contributions: Increase with more staff.
• Alabama Department of Revenue (ALDOR): Oversees state payroll taxes.

State Unemployment Insurance (SUI) Tax

This employer-paid tax supports temporary unemployment benefits for workers.

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.

Rates are based on the employer’s unemployment claims history and taxes paid, with notifications provided in December. Here are the key details:

State Withholding Tax

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.

Employers withhold this tax from their employees' wages and remit it to ALDOR. The withholding amounts are determined by several factors including wages, filing status, and number of dependents. The rates range from 2% to 5%.

Payroll Tax Due Dates

Failing to meet these deadlines can result in a fine of $25 or 10% of the taxes owed, whichever is greater.

Submission Process

For payments exceeding $750, employers must use the My Alabama Taxes (MAT) system. Here's a breakdown of the submission methods:

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. 

Managing payroll taxes in Alabama requires careful attention to detail and adherence to state laws:

• Local Taxes: Some municipalities collect an additional income tax known as occupational taxes, which vary by location.
• Audits: Businesses may be audited to ensure compliance with tax obligations.
• Nonprofits: Nonprofit organizations are subject to state unemployment tax if they meet certain employee thresholds.

By understanding these obligations and utilizing available resources like the MAT system, employers can ensure compliance and smooth operation of their payroll processes.

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.