Alabama Hourly Paycheck Calculator
If you run a business in Alabama, keeping track of all the payroll taxes and paycheck laws can feel like a handful. Fortunately, you don’t have to do it all on your own.
Here are the main payroll taxes and laws you need to know about if you’re an employer in the state of Alabama.
Federal payroll taxes
As with all states, employers and employees in Alabama are responsible for a variety of federal payroll taxes. Two taxes are employee-paid, one is employer-paid, and one is paid by both sides.
In this section, we’ll explain the federal payroll taxes that Alabama employers need to pay on top of the state-specific taxes.
Employee-paid federal payroll taxes
Federal income tax
Every payroll period, you’ll need to withhold federal income tax from your employees’ earnings using the information from your team’s Form W-4s. Details like filing status and earnings determine how much tax to withhold, and the W-4 will help you withhold the correct amounts.
Your employees complete Form W-4 when they begin working at your company or when their financial situation changes.
Additional Medicare Tax
You may also have to withhold the Additional Medicare Tax from your team’s paychecks.
If your employee earns more than $200,000 a year, you’ll have to withhold 0.9% for the amount that exceeds $200,000.
Employer-paid federal payroll taxes
Like the state, the federal government also has an unemployment tax. It’s called FUTA and it’s an annual tax employers pay on the first $7,000 of each employee’s wages. The FUTA rate for 2022 is 6%, but most employers only have to pay 0.6% each year.
Federal payroll taxes paid by employees and employers
The Federal Insurance Contributions Act, or FICA tax, is made up of the Medicare tax and the Social Security tax.In 2022, the Social Security tax requires employers and employees to each contribute 6.2% of wages up to $147,000. The Medicare tax requires each to contribute 1.45% of all wages. See the IRS webpage for details, like maximum thresholds.
Alabama payroll taxes
Employee-paid payroll taxes
State income tax
In Alabama, employers are required to withhold state income tax from all employees who are Alabama residents—with a few exceptions.
The main classes of employees that are exempt from this type of withholding are:
- Ordained ministers (when they are performing ministerial job duties)
- Agricultural employees
- Domestic helpers working in private homes (like nannies)
- Merchant mariners
To determine the correct amount of tax to withhold, ask your employees to fill out Form A4, also known as the Employee’s Withholding Tax Exemption Certificate. (Also, make sure to keep a copy of each employee’s Form A4 on file.)
To calculate how much to withhold from each employee’s paycheck, you’ll need the state’s W-4 equivalent form and the Alabama Withholding Tax Table. Or you can skip the paperwork and let automated payroll software crunch the numbers for you.
Local income tax
There are also local income taxes that your employees may need to pay.
In Alabama, this tax has different names depending on the city or town your employee works in. In fact, it may not even include the word “tax” in its name. For example, in the City of Auburn, local income tax is called the Occupational License Fee. No matter what it’s called within the city you operate, you need to withhold local income tax from employees’ earnings if such a tax exists. Call your city or town to find out if there is a local income tax where your business is located.
Employer-paid payroll taxes
Alabama Unemployment Compensation
There’s only one tax in Alabama that’s fully paid by employers: the Unemployment Compensation (UC) tax that’s imposed annually on the wages for each employee’s earnings up to a limit that can vary by state.
Most new employers in Alabama will be assigned the new employer rate for Alabama (which varies by state, and by year, and can even vary by industry). For established businesses, the tax rate is unique and can change each year. The minimum rate and the maximum rate for established employers in Alabama can also be found here (this can also vary each year). Log in to your account with the Alabama Department of Labor to get your specific UC rate.
Requirements to obtain Workers’ Compensation vary by state, this table outlines some of these requirements. If you determine that your company is required to purchase Workers’ Compensation insurance in your state, learn how to sign up for this insurance with Gusto. Sometimes, companies get a request for a workers’ comp audit—head to this article and click the workers’ comp audit reports dropdown for more information.
Alabama paycheck laws you should know
Taxes aren’t the only thing to keep track of when running payroll. Here are some important Alabama paycheck laws you should keep in mind when paying employees.
- Report new hires to Alabama’s Department of Labor within seven days of your employee’s start date. Do it, because you may be fined if you don’t submit the report on time.
- Follow the U.S. Department of Labor’s laws on pay and wage issues since Alabama doesn’t have any state-specific rules. Here are some highlights:
- Minimum wage: In 2022, the federal minimum wage per hour is $7.25.
- Overtime: Non-exempt employees must be paid overtime at a rate of 1 & ½ times their regular rate of pay for any hours worked over 40 hours in a single week.
- Pay stubs: You don’t have to provide pay stubs to employees. But you are required to keep accurate records of how many hours your team worked and the wages they received for that work.
- Final Paychecks: Final paychecks must be paid on the next regularly scheduled pay date. There is no requirement to issue final paychecks immediately.
Do all these rules and rates sound like a lot to remember? Luckily, a payroll processor that knows the ins and outs of Alabama taxes can lend a hand.