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Updated: May 30, 2023
To outsiders, Alabama is best known for the intense rivalry between the Tigers and the Crimson Tide. As an Alabaman, you’re proud to point out that the state extends way beyond college football. You know about Huntsville being the rocket capital of the world and Mobile being the birthplace of Hank Aaron. However, as a small business owner, you can’t escape one fact. Whether you own the trendiest coffee shop in Montgomery or the oldest pub in Birmingham, you always have to deal with payroll taxes.
First and foremost, we have to give Uncle Sam his due. We’ll go through a quick overview of what you need to know when it comes to calculating federal payroll taxes. If you would like to see a more detailed explanation, we invite you to head on over to our comprehensive step-by-step guide.
Now that we’re done with federal taxes, let’s talk about Alabama state taxes, shall we?
The state has a progressive income tax, meaning the more money your employees make, the higher the income tax. The tax rate ranges from 2% to 5%.
In addition, depending on where in Alabama your employees live or work, certain cities also levy income taxes ranging from 0% to 2%.
Alabama doesn’t have state disability insurance, but it does have unemployment insurance, which covers those unemployed through no fault of their own. The wage base was $8,000 for 2023, and rates range from 0.2% to 5.4%. A new wage base has not been announced yet for 2023 and new rates will be published as soon as they are available.
If you’re a new employer (congrats on your new venture!), you’ll pay a flat rate of 2.7%.
Remember, paying your SUI in full and on time qualifies you to get a huge FUTA tax credit, so make sure you pay attention to the due dates.
Just in case you want to learn even more about Alabama payroll taxes, here are a few helpful links.
Alabama Department of Labor: (800) 361-4524 | Register Your Business | Employer FAQ
Alabama Department of Revenue: (334) 242-1170 | Withholding Tax | Tax Due Dates
You’re almost at the goal line! All that’s left to do after calculating your employee’s net pay is cut those checks. Just make sure you’re setting aside the amount your company needs to pay to avoid any FICA and UI tax fiascos.
You will need to use Form 941 to file federal taxes quarterly, and Form 940 to report your annual FUTA tax. You can pay taxes online using the EFTPS payment system. More details about employment tax due dates can be found here.
Employers in Alabama can use the straightforward calculator at the top of this page to calculate payroll (and necessary tax deductions). But occasionally, employers run into unique situations that call for a little more finesse with regard to paychecks. For instance, you may need to issue a final paycheck when an employee leaves for a different job. Or, if you reward employees with bonus pay — similar to regular wages — taxes must be withheld. So, if you need more help crunching the numbers, check out the additional calculators listed below.
Try OnPay out yourself to see how easy payroll and HR can be. To get started, just share a few basic details about your business. Our team of pros will set everything up and import your employees’ information for you.